Recent Evidence on the Performance and Riskiness of Contrarian Portfolios
The European Journal of Finance Vol. 18, No. 7, August 2012, 603–617
Posted: 21 Jan 2016
Date Written: August 1, 2012
The paper assesses the most recent performance, persistence and riskiness of contrarian portfolios. Evidence from the major world and European market of France shows that such portfolios appear profitable on average, but their performance is not persistent from one holding period to the next; hence there exist inherent risks, especially for investors that remain in markets for up to two consecutive investment periods. These risks, as measured by the CAPM (traditional, and less traditional versions that are meant to capture timing) and the Fama–French model, are not systematic and they are not related to market timing. Overall, taking only long positions in normal markets and hedged positions following market shocks seems to be the most promising route for contrarians in France.
Keywords: overreaction, contrarian, market timing, CAPM, Fama–French three factor model, French security exchange
JEL Classification: G1, G10, G11, G14
Suggested Citation: Suggested Citation