Problems in measuring portfolio performance An application to contrarian investment strategies

Problems in measuring portfolio performance An application to contrarian investment strategies We document problems in measuring raw and abnormal five-year contrarian portfolio returns. ‘Loser’ stocks are low-priced and exhibit skewed return distributions. Their 163% mean return is due largely to their lowest-price quartile position. A $ 1 8 -th price increase reduces the mean by 25%, highlighting their sensitivity to micro-structure/liquidity effects. Long positions in low-priced loser stocks occur disproportionately after bear markets and thus induce expected-return effects. A contrarian portfolio formed at June-end earns negative abnormal returns, in contrast with the December-end portfolio. This conclusion is not limited to a particular version of the CAPM. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Problems in measuring portfolio performance An application to contrarian investment strategies

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0304-405x
D.O.I.
10.1016/0304-405X(94)00806-C
Publisher site
See Article on Publisher Site

Abstract

We document problems in measuring raw and abnormal five-year contrarian portfolio returns. ‘Loser’ stocks are low-priced and exhibit skewed return distributions. Their 163% mean return is due largely to their lowest-price quartile position. A $ 1 8 -th price increase reduces the mean by 25%, highlighting their sensitivity to micro-structure/liquidity effects. Long positions in low-priced loser stocks occur disproportionately after bear markets and thus induce expected-return effects. A contrarian portfolio formed at June-end earns negative abnormal returns, in contrast with the December-end portfolio. This conclusion is not limited to a particular version of the CAPM.

Journal

Journal of Financial EconomicsElsevier

Published: May 1, 1995

References

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