Long-Term Return Reversal: Evidence from International Market Indices
32 Pages Posted: 1 Aug 2012 Last revised: 27 Feb 2013
Date Written: August 1, 2012
This paper documents evidence of reversals in the long-term returns of international equity markets. We use recent short-term performance to better select contrarian securities that appear ready to reverse. Our late-stage contrarian strategy consistently provides stronger evidence of long-term return reversal than does the traditional pure contrarian strategy when applied to developed and emerging market indices. Despite an absence of cross-sectional contrarian profits for developed markets in our post-1989 subsample, longitudinal analysis provides strong evidence of reversals during this period. Overall, our results suggest that the reversal of long-term returns may be stronger and more pervasive than is generally understood.
Keywords: contrarian effect, international financial integration, developed markets, emerging markets
JEL Classification: G14, G15
Suggested Citation: Suggested Citation