Portfolio Selection with Contrarian Strategy
25 Pages Posted: 30 Jun 2020
Date Written: June 7, 2020
Compared with extensive empirical literature on contrarian strategy, we build a dynamic mean-variance model with geometric mean reversion stock price which implies a contrarian strategy. Our model suggests that the investor should buy distressed stocks, and sell them after the company recovers. Simulation and empirical test demonstrate that our model often yields a significant return in a volatile market.
Keywords: portfolio selection;contrarian strategy; geometric mean reversion process; mean variance
JEL Classification: G11; D81;C61
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