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Title: Contrarian investment strategies in the US equity market on the base of constituents of Standard and Poor's 500 Index in the years 1990-2012
Author: Kiselev, Egor
ISNI:       0000 0004 7232 8187
Awarding Body: Loughborough University
Current Institution: Loughborough University
Date of Award: 2018
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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).
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: Contrarian strategies