The Winners and Losers Effect: Evidence from the Istanbul Stock Exchange

31 Pages Posted: 11 Mar 2002

See all articles by Recep Bildik

Recep Bildik

Borsa Istanbul (Istanbul Stock Exchange)

Guzhan Gulay

Istanbul Stock Exchange

Date Written: February 28, 2002


Financial academics and practitioners have recognized that average stock returns are related to past performance and cross-section of stock returns is that predictable based on past returns. Number of researchers report that past losers (negative or lowest return-stocks) outperform past winners (positive or highest return-stocks) or vice versa over the subsequent three to five years not only in US markets but also in other stock markets.

This study examines the momentum and contrarian effects on stock returns in one of the leading emerging markets, Istanbul Stock Exchange between years 1991 and 2000 by using the same empirical methodology in Jegadeesh and Titman (1993). It also investigates the weak-form efficiency of the stock market by examining the profitability of a number of contrarian strategies based on past prices of stocks.

Prior loser-stocks are found to outperform prior winner-stocks consistent with the predictions of the overreaction hypothesis. Compounded annual return difference between the top-winners and top-losers is around 15% in favor of loser-stocks since the average return difference during the 10-year period is 1.14% per month. Empirical findings for the longer-term average returns such as 24 and 36 month holding periods reveal a reversal of returns from one to three years. On the other hand, we find that average abnormal returns per month and the average abnormal return difference between losers and winners increase as the holding period extends. Results also indicate that there is a downward trend in average returns based upon the length of past returns that is used in the strategy for the winner stocks but upward trend for the losers. The gap between losers and winners increases in favor of losers increases as goes back and the effect of length of past returns on holding period return seems to be more important than that of the length of holding period (K). Profitability of the strategies is robust to changes in the size of the portfolios. We also find that contrarian profits in January are significantly higher than those in non-January months, particularly for the strategies which are based on relatively shorter holding periods such as one and three months. Persistently, losers earn large January returns which are significantly higher than those of winners.

Finally, our results show that contrarian effects or more specifically 'winners and losers effect' are existing on stock returns in the Istanbul Stock Exchange and the contrarian trading strategies that is buying past losers and selling past winners realize significant abnormal profits to the investors. The evidence is consistent with the overreaction and partially with the behavioral hypotheses.

Keywords: Momentum effects, contrarian strategies, winners-losers effect, overreaction, market efficiency, emerging markets

JEL Classification: G12, G14

Suggested Citation

Bildik, Recep and Gulay, Guzhan, The Winners and Losers Effect: Evidence from the Istanbul Stock Exchange (February 28, 2002). Available at SSRN: or

Recep Bildik (Contact Author)

Borsa Istanbul (Istanbul Stock Exchange) ( email )

Borsa Istanbul
Resitpasa, Emirgan
Istanbul, 34467
90-212-298 21 93 (Phone)
90-212-298 25 00 (Fax)

Guzhan Gulay

Istanbul Stock Exchange ( email )

Istanbul Menkul Kiymetler Borsasi
Istinye 80860 Stock Market Department
90-212-298 22 16 (Phone)
90-212-298 25 00 (Fax)

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