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Overreaction, Delayed Reaction, and Contrarian Profits

REVIEW OF FINANCIAL STUDIES, Vol. 8 No. 4

Posted: 9 Jul 1998  

Narasimhan Jegadeesh

Emory University - Department of Finance

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Abstract

This paper examines the contribution of stock price overreaction and delayed reaction to the profitability of contrarian strategies. The evidence indicates that stock prices overreact to firm-specific information but react with a delay to common factors. Delayed reactions to common factors give rise to size-related lead-lag effect in stock returns. In sharp contrast with the conclusions in the extant literature, however, this paper finds that most of the contrarian profit is due to stock price overreaction and a very small fraction of the profit can be attributed to the lead-lag effect.

JEL Classification: G19

Suggested Citation

Jegadeesh, Narasimhan and Titman, Sheridan, Overreaction, Delayed Reaction, and Contrarian Profits. REVIEW OF FINANCIAL STUDIES, Vol. 8 No. 4. Available at SSRN: https://ssrn.com/abstract=7224

Narasimhan Jegadeesh (Contact Author)

Emory University - Department of Finance ( email )

Atlanta, GA 30322-2710
United States

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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