Can Contrarian Strategies Improve Momentum Profits

Journal of Investment Management, Vol. 4, No. 1, First Quarter 2006

Posted: 22 Apr 2006

See all articles by Hung Wan Kot

Hung Wan Kot

University of Macau - Department of Finance and Business Economics

Kalok Chan

CUHK Business School

Abstract

This paper investigates whether investors can exploit the contrarian cycle to improve the profitability of momentum strategies. We conjecture that the momentum strategies implemented in the early stage of price reversal (MSES) are more profitable than those implemented in the late stage of price reversal (MSLS). Our empirical results show that while MSES records significant positive returns, the profits from MSLS are not significant. There is a continuation of momentum profits in MSES up to 60 months, but not in MSLS. The overall evidence indicates that we can improve the profits of momentum strategies if we also consider past long-term performance.

Keywords: Price reversal, momentum strategies

JEL Classification: G00

Suggested Citation

Kot, Hung Wan and Chan, Kalok, Can Contrarian Strategies Improve Momentum Profits. Journal of Investment Management, Vol. 4, No. 1, First Quarter 2006. Available at SSRN: https://ssrn.com/abstract=897388

Hung Wan Kot

University of Macau - Department of Finance and Business Economics ( email )

Macau

Kalok Chan (Contact Author)

CUHK Business School ( email )

Hong Kong
852 3943 9988 (Phone)

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