The existence of contrarian profits is a well-documented finding across various equity markets around the world. A key question, which is the focus of this research, is - why do such profits exist? Potential answers are examined in a large number of research papers, and fall into two categories: rational (i.e. there is a difference in risks characteristics of glamour and value stocks) and behavioural (i.e. the market regularly overshoots, leading to a mis-valuation of glamour and value stocks followed by a correction). However, a consensus has not been achieved so far. This research contributes to this discussion, based on the S&P 500 constituents through 1990-2013 with the use of strategies based on past returns, fundamental ratios and valuation models. I assess the following issues: whether the use of contrarian strategies can be considered as justified by the rational behaviour of a portfolio manager, whose clients may have a cheaper option to invest in a passive strategy, like an index fund or exchange traded fund (chapter 3); whether contrarian profits are mainly the product of (i) fair value revisions in response to new information or (ii) corrections to prior mis-pricing (chapter 4); whether contrarian profits are mainly the product of expected returns as imputed from the Fama and French three factor model (chapter 5). On the first point I find that an equally weighted portfolio of all constituents of S&P 500 over a particular testing period was superior to any of the tested contrarian strategies from risk/return perspective (Chapter 3). On the second point, I find that fair value revisions to new information is less important in explaining contrarian profits than corrections to prior mis-pricing when the market rebounded in 2009 (the only year where these two influences explained a significant part of the contrarian profits for most of the contrarian strategies under review) from the 2008 financial crisis (Chapter 4). On the third point, I find that rational pricing factors (both the Fama-French three factor model, and fair value revisions to new information) are more important in explaining contrarian profits than corrections to prior mis-pricing, which is mainly due to the significance of the Fama-French three factor model (Chapter 5).

<p>Denna studie undersöker huruvida momentumstrategier applicerat på OMXS30 under perioden2004-01-01 till och med 2009-06-30 genererar riskjusterad överavkastning vid jämförelse medmarknadsindexet OMXS All-share. Detta görs med en teoretisk grund i modern portföljteori, deneffektiva marknadshypotesen samt CAPM. Momentumstrategierna prövas genom attinledningsvis rangordna de aktier som ingår i OMXS30 efter historisk avkastning under deföregående sex månaderna. Därefter sätts portföljer samman enligt en strategi innehållande treaktier och en strategi innehållande tio aktier. Båda strategierna med en investeringshorisont på sexmånader. Strategiernas resultat utvärderas sedan med Jensens Alfa och Treynorkvot. Slutligentestas om resultaten är statistiskt signifikanta med T-test. Resultaten av den genomförda studienvisar att momentumstrategierna genererar statistiskt säkerställd riskjusterad överavkastning därstrategi med tre aktier ger den högsta överavkastningen. Detta tyder på att den svenskaaktiemarknaden inte uppfyller kraven för den svaga formen av marknadseffektivitet.</p>

Denna studie undersöker huruvida momentumstrategier applicerat på OMXS30 under perioden2004-01-01 till och med 2009-06-30 genererar riskjusterad överavkastning vid jämförelse medmarknadsindexet OMXS All-share. Detta görs med en teoretisk grund i modern portföljteori, deneffektiva marknadshypotesen samt CAPM. Momentumstrategierna prövas genom attinledningsvis rangordna de aktier som ingår i OMXS30 efter historisk avkastning under deföregående sex månaderna. Därefter sätts portföljer samman enligt en strategi innehållande treaktier och en strategi innehållande tio aktier. Båda strategierna med en investeringshorisont på sexmånader. Strategiernas resultat utvärderas sedan med Jensens Alfa och Treynorkvot. Slutligentestas om resultaten är statistiskt signifikanta med T-test. Resultaten av den genomförda studienvisar att momentumstrategierna genererar statistiskt säkerställd riskjusterad överavkastning därstrategi med tre aktier ger den högsta överavkastningen. Detta tyder på att den svenskaaktiemarknaden inte uppfyller kraven för den svaga formen av marknadseffektivitet.

none

Yes / This study investigates whether, how and why industry performance can drive long-term return reversals. Using data from the UK, we find that firms in losing industries significantly outperform those in winning industries over the subsequent five years. These industry reversals remain strong and persistent after controlling for stock momentum, industry momentum, seasonal effects and traditional risk factors. We find a strong influence of past industry performance on stock return reversals. Our results also show that past industry performance is the driving force behind long-term reversals. Specifically, we find that industry components drive stock reversals, while past stock performance does not explain industry reversals. Further analysis suggests that industry reversals are present in both good and bad states of the economy and are stronger in industries with high valuation uncertainty. This implies that industry reversals are more likely to be a result of mispricing.

Seminario para optar al grado de Ingeniero Comercial, Mención Administración / El presente seminario confirma, basándose en la metodología utilizada en González (2006), la validez de las Hipótesis de Sobrereacción y Subreacción en el mercado accionario chileno, mediante el estudio de las estrategias de Momentum y Contrarian. En efecto, se encuentra que Momentum obtiene un retorno significativo de 7,06%, para un periodo de formación y testeo de 6 meses, mientras que la estrategia Contrarian, un 33,55%, considerando periodos de formación y testeo de 24 meses. Esto re-confirma además, la persistencia en las oportunidades de arbitraje en el tiempo. Tras estudiar los costos de transacción para ambas estrategias, en base a la medida propuesta en Lesmond et. al (2004) de Spread más Comisión citada, se observa que éstos equivalen a un 20% y 25%, respectivamente, los que entregan unos retornos netos de -13,5% y 8,5%. Si bien este último es positivo, factores como el tiempo que hay que mantener la posición abierta (24 meses), la volatilidad en los resultados, y la estimación conservadora de los costos, a través de la medida utilizada, omitiendo costos relevantes, hace que ninguna de las estrategias sea interesante desde el punto de vista de una oportunidad de inversión real. De esta forma, efectivamente se catalogan los retornos de las estrategias como teóricos (González 2006), sin embargo, esto no se debe a las restricciones a la venta corta existentes actualmente, sino que principalmente a los altos costos de transacción que implica transar los portafolios de estas estrategias (especialmente el perdedor), además de los ya mencionados. Es entonces este hecho el que finalmente permite explicar la persistencia en las oportunidades de arbitraje en el tiempo. Por último, incluir una aproximación de los costos de transacción en el mercado accionario chileno, constituye un aporte a la escasa evidencia sobre el tema, y además, según Lesmond (2005), al ser este mercado sumamente ilíquido, se reafirma la necesidad de estudiar los costos de transacción en futuras investigaciones.

This thesis is an investment strategy that seeks to profit from increases in market volatility. There have been several boom and bust cycles during the past fifteen years and volatility is projected to continue forward as a result of global asset misallocation and challenges stemming from debt liquidity. Volatility is measured by the Chicago Board of Options Exchange VIX volatility index. A proposed mean reversion strategy uses the VIX as a contrarian indicator of hope and fear to time decisions at extreme levels that have been determined through statistical analysis. This thesis found through back testing that market timing is possible at extreme levels of fear but is less reliable during extreme levels of hope and complacency. This strategy that utilizes measures of sentiment does however outperform the general market despite being active only five months on average per year. By synthesizing a broad range of fundamental, technical, and behavioral research, this thesis develops a unique contribution and practical set of market trading guidelines. The significance of these findings will help the individual investor to make better decisions during times of increased volatility.

Directors of listed companies earn abnormal returns by trading in a contrarian manner. This research report investigated whether outside investors can earn abnormal returns by following director contrarian trades. The returns to directors and outsiders, following a director trade were analysed using the event study methodology. The event study methodology utilised director trading information from SENS announcements on the JSE Securities Exchange, daily share prices, betas and price to book values for the selected companies, and daily all share index prices. The focus of the analysis was the post trade Cumulative Average Abnormal Returns (CAAR), in the 20 days following the director trade. The overall CAAR for all transactions was a statistically significant but economically insignificant 0.43%. When viewed from a transaction type perspective, the CAAR was 0.72% and 0.44% for purchases and sales transactions respectively. This study shows that while directors of listed South African companies do earn abnormal returns, they do not do so while consistently trading in a contrarian manner. In fact, transactions not deemed contrarian generated higher abnormal returns for directors. In addition, the study shows that outside investors do not earn abnormal returns by mimicking directors, and actually, their following of director trades generates the abnormal returns for directors. Copyright / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

The objective of this study was to analyse the impact of business magazine cover stories, albeit positive, neutral or negative, on the share price of the featured company. Two of the aspects of investment finance are rational behaviour and efficient markets. Both of these concepts were explored to understand why a cover story would have an impact on a company share price. Causal research was conducted to analyse the correlation between a magazine cover story and the featured company’s share price. The cover stories were collected form the Financial Mail and Finance Week archives. The holding period returns were calculated and compared to zero to analyse whether there was any momentum or contrarian signals. The holding period returns were also adjusted for that of the average of the resources index (J258) to ascertain whether the returns were abnormal or not. The results have shown that in some instances, such as with neutral cover stories, the markets show strong signs of efficiency. The results of positive cover stories showed these to be momentum indicators, however when the results were adjusted for the resource index, many the positive returns dissipated. Negative cover stories had the strongest results, where after the cover story there were clear contrarian signals. Most of the companies stopped showing negative returns. Copyright / Dissertation (MBA)--University of Pretoria, 2010. / Gordon Institute of Business Science (GIBS) / unrestricted

Denna studie kartlägger om det är möjligt att med hjälp av svenska insynspersoners värde-pappershandel prognostisera den svenska aktiemarknaden. Individuella insynspersoner har tidigare visats ha mer information kring enskilda företag än övriga aktörer på en aktiemarknad och har vistats skapa överavkastning gentemot marknaden. Aggregerad insynshandel har tidi-gare visat sig ha ett positivt samband med framtida avkastning på aktiemarknader. För att undersöka sambandet mellan svensk insynshandel och den svenska aktiemarknaden använder vi finansinspektionens insynslista som innefattar över 209 000 transaktioner av svensk insynshandel för perioden 1991-2013. Detta material undersöks tillsammans med hi-storiska indexvärden över tidsperioden och sambandet kartläggs med hjälp av OLS-regressioner. Vi undersöker även vad som driver sambandet mellan insynshandel och framtida avkastning, och vilket ekonomiskt värde det finns i insynshandel som prognosinstrument. Resultaten visar på att det finns ett statistiskt signifikant positivt samband mellan insynshan-del och framtida avkastning på den svenska aktiemarknaden. Detta samband blir starkare på lång sikt. Vi ser även att köptransaktioner är en starkare indikator för framtida marknadsrörel-ser än säljtransaktioner. Detta bekräftar tidigare studier där de menar att insynspersoner ofta säljer innehav på grund av andra anledningar än vinstsyfte. Vi finner även att sambandet drivs av ett informationsövertag men även av en Contrarian-strategi samt en genomlysningseffekt. Slutligen skapar vi prognosmodeller grundade i historisk insynshandel och genomför backtest på dessa under 22 år. Resultaten pekar på att insynshandel fungerar bra för att prognostisera framtida uppgångar på den svenska aktiemarknaden och är användbara för att skapa invester-ingsstrategier. / This study investigates if it possible to forecast the Swedish stock market using insider trading data. Individual insiders have been shown to have more information concerning a company than other investors. Additionally, insiders have been shown to be able to outperform the market in earnings from trading in company stock. Aggregate insider trading has, in previous studies, been shown to have a positive relationship with future returns on stock markets. To map the relationship between Swedish insider trading and the Swedish stock market we use the insider trading records from Finansinspektionen containing over 209 000 transactions over the course of 22 years. These records are examined together with a historic stock price index from the same time period. The relationship between the two is examined using OLS-regressions. We examine what factors drive the predictive power of insider trading and what economic value insider trading has as a forecasting instrument. Our results show that there is a statistically significant positive relationship between insider trading and future returns on the Swedish stock market, the significance increases with time. We also find indications that insider purchases have a stronger relationship with future index movements than insider sales have. This is consistent with earlier studies that find that insid-ers sell stock for many other reasons than profit. We conclude that the predictive power of insider trading derive from an information advantage, although our results indicates that some of the predictive power can be explained by a contrarian-strategy and a transparency effect. Finally we construct forecast-models based on historical insider trading and back-test these on the 22 year period. Results from these tests indicate that aggregate insider trading is effective in predicting future rises in the stock market and can function as a basis for successful invest-ment strategies.