Can Contrarian Strategies Improve Momentum Profits
Journal of Investment Management, Vol. 4, No. 1, First Quarter 2006
Posted: 22 Apr 2006
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: Suggested Citation