Contrarian Profits and the Overreaction Hypothesis: The Case of the Athens Stock Exchange

25 Pages Posted: 12 Jan 2005

See all articles by Antonios Antoniou

Antonios Antoniou

Wealth Associates

Emilios C. Galariotis

Audencia Business School

Spyros I. Spyrou

Athens University of Economics and Business - Department of Accounting and Finance

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Abstract

This paper investigates the existence of contrarian profits and their sources for the Athens Stock Exchange (ASE). The empirical analysis decomposes contrarian profits to sources due to common factor reactions, overreaction to firm-specific information, and profits not related to the previous two terms, as suggested by Jegadeesh and Titman (1995). Furthermore, in view of recent evidence that common stock returns are related to firm characteristics such as size and book-to-market equity, the paper decomposes contrarian profits to sources due to factors derived from the Fama and French (1993, 1996) three-factor model. For the empirical testing, size-sorted sub-samples that are rebalanced annually are employed, and in addition, adjustments for thin and infrequent trading are made to the data. The results indicate that serial correlation is present in equity returns and that it leads to significant short-run contrarian profits that persist even after we adjust for market frictions. Consistent with findings for the US market, contrarian profits decline as one moves from small stocks to large stocks, but only when market frictions are considered. Furthermore, the contribution to contrarian profits due to the overreaction to the firm-specific component appears larger than the underreaction to the common factors.

Suggested Citation

Antoniou, Antonios and Galariotis, Emilios C. and Spyrou, Spyros I., Contrarian Profits and the Overreaction Hypothesis: The Case of the Athens Stock Exchange. European Financial Management, Vol. 11, No. 1, pp. 71-98, January 2005. Available at SSRN: https://ssrn.com/abstract=647728

Antonios Antoniou (Contact Author)

Wealth Associates ( email )

Alpine House,
Honeypot Lane
London, NW9 9RX
United Kingdom

Emilios C. Galariotis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

HOME PAGE: http://faculte-recherche.audencia.com/en/faculty/faculty-member-cvs/emilios-galariotis/

Spyros I. Spyrou

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

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