Loughborough University
Browse
Thesis-2018-Kiselev.pdf (5.48 MB)

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

Download (5.48 MB)
thesis
posted on 2018-05-21, 15:24 authored by Egor Kiselev
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).

History

School

  • Business and Economics

Department

  • Business

Publisher

© Egor Kiselev

Publisher statement

This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/

Publication date

2018

Notes

A Doctoral Thesis. Submitted in partial fulfilment of the requirements for the award of Doctor of Philosophy of Loughborough University.

Language

  • en

Usage metrics

    Business School Theses

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC