Contrarian Investment, Extrapolation, and Risk

Posted: 26 Oct 1999

See all articles by Josef Lakonishok

Josef Lakonishok

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

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Abstract

For many years, scholars and investment professionals have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher retruns, the interpretation of why they do so is more controversial. This paper provides evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier.

JEL Classification: G1, G12

Suggested Citation

Lakonishok, Josef and Shleifer, Andrei and Vishny, Robert W., Contrarian Investment, Extrapolation, and Risk. JOURNAL OF FINANCE, VOL. 49, NO. 5, December 1994, Available at SSRN: https://ssrn.com/abstract=5653

Josef Lakonishok

University of Illinois at Urbana-Champaign ( email )

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National Bureau of Economic Research (NBER)

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Andrei Shleifer

Harvard University - Department of Economics ( email )

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HOME PAGE: http://www.economics.harvard.edu/~ashleife/

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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Robert W. Vishny (Contact Author)

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States
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312-702-0118 (Fax)

National Bureau of Economic Research (NBER)

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United States

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