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Empirical Economic Bulletin, An Undergraduate Journal
Asset pricing; market efficiency; factor model; mean reversion
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Factor Model Tests Of Long-Run Price Reversals In The U.S. Stock Market, Harrison Garrett
Factor Model Tests Of Long-Run Price Reversals In The U.S. Stock Market, Harrison Garrett
Empirical Economic Bulletin, An Undergraduate Journal
This paper investigates whether long-run price reversals persist in stocks that have significantly outperformed or underperformed the market. Consistent with previous studies, the results show that there are sizeable positive abnormal returns to a long-term contrarian strategy of investing in stocks with significant prior underperformance. However, these positive abnormal returns are driven by low-priced stocks, and stocks with very low market capitalizations. When the investment universe is narrowed to remove very small companies and lowpriced stocks, there is no longer a statistically significant return difference between portfolios of stocks with significant prior outperformance and significant prior underperformance.