IDEAS home Printed from https://ideas.repec.org/a/jfr/ijfr11/v6y2015i2p1-10.html
   My bibliography  Save this article

Losers Win, Winners Lose: Evidence against Market Efficiency

Author

Listed:
  • Zachary Alexander Smith

Abstract

The goal of this research project was to evaluate whether there is statistically significant evidence of the Winner / Loser Phenomenon identified in DeBondt and Thaler (1985) using a unique data set and multiple examination windows. This study finds statistically significant evidence of short-run negative autocorrelation of returns. More importantly, if investors used a daily rebalance over this time period and invested simultaneously in the previous day¡¯s loser ETF and the previous day¡¯s winner ETF they would have obtained Cumulative Abnormal Returns of 113.50% and -134.13%, respectively. In addition, this study supports the experimental research findings documented in Bloomfield, R., Libby, R., and Nelson, M. (1998) and Bloomfield, R. and Hales, J. (2002) by providing evidence that (a) the performance of the market portfolio and the loser portfolio show signs of trending behavior and (b) the loser portfolio shows signs of significant outperformance conditioned upon a negative performance event.

Suggested Citation

  • Zachary Alexander Smith, 2015. "Losers Win, Winners Lose: Evidence against Market Efficiency," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 1-10, April.
    • Handle: RePEc:jfr:ijfr11:v:6:y:2015:i:2:p:1-10
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/6620/3942
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/6620
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Nerissa C. Brown & Kelsey D. Wei & Russ Wermers, 2014. "Analyst Recommendations, Mutual Fund Herding, and Overreaction in Stock Prices," Management Science, INFORMS, vol. 60(1), pages 1-20, January.
    2. Jegadeesh, Narasimhan, 1990. "Evidence of Predictable Behavior of Security Returns," Journal of Finance, American Finance Association, vol. 45(3), pages 881-898, July.
    3. repec:bla:jfinan:v:53:y:1998:i:6:p:1839-1885 is not listed on IDEAS
    4. Barberis, Nicholas & Shleifer, Andrei & Vishny, Robert, 1998. "A model of investor sentiment," Journal of Financial Economics, Elsevier, vol. 49(3), pages 307-343, September.
    5. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    6. Barber, Brad M. & Lyon, John D., 1997. "Detecting long-run abnormal stock returns: The empirical power and specification of test statistics," Journal of Financial Economics, Elsevier, vol. 43(3), pages 341-372, March.
    7. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    8. Lam, Kin & Liu, Taisheng & Wong, Wing-Keung, 2010. "A pseudo-Bayesian model in financial decision making with implications to market volatility, under- and overreaction," European Journal of Operational Research, Elsevier, vol. 203(1), pages 166-175, May.
    9. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefanescu, Razvan & Dumitriu, Ramona, 2016. "Particularitǎţi ale evoluţiei variabilelor financiare [Some particularities of the financial variables evolution]," MPRA Paper 73481, University Library of Munich, Germany, revised 02 Sep 2016.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hon, Mark T. & Tonks, Ian, 2003. "Momentum in the UK stock market," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 43-70, February.
    2. Martin H. Schmidt, 2017. "Trading strategies based on past returns: evidence from Germany," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(2), pages 201-256, May.
    3. Kang, Joseph & Liu, Ming-Hua & Ni, Sophie Xiaoyan, 2002. "Contrarian and momentum strategies in the China stock market: 1993-2000," Pacific-Basin Finance Journal, Elsevier, vol. 10(3), pages 243-265, June.
    4. Kobana Abukari & Isaac Otchere, 2020. "Dominance of hybrid contratum strategies over momentum and contrarian strategies: half a century of evidence," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(4), pages 471-505, December.
    5. Nicholas Apergis & Vasilios Plakandaras & Ioannis Pragidis, 2022. "Industry momentum and reversals in stock markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3093-3138, July.
    6. Hofmann, Daniel & Keiber, Karl Ludwig & Luczak, Adalbert, 2022. "Up and down together? On the linkage of momentum and reversal," Global Finance Journal, Elsevier, vol. 54(C).
    7. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, January.
    8. Tobias Wiest, 2023. "Momentum: what do we know 30 years after Jegadeesh and Titman’s seminal paper?," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(1), pages 95-114, March.
    9. Syed Riaz Mahmood Ali, 2022. "Do momentum and reversal matter in the Singapore stock market?," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 29(6), pages 1692-1708, November.
    10. Giulio Bottazzi & Pietro Dindo & Daniele Giachini, 2019. "Momentum and reversal in financial markets with persistent heterogeneity," Annals of Finance, Springer, vol. 15(4), pages 455-487, December.
    11. Daniel, Kent & Hirshleifer, David & Teoh, Siew Hong, 2002. "Investor psychology in capital markets: evidence and policy implications," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 139-209, January.
    12. Balvers, Ronald J. & Wu, Yangru, 2006. "Momentum and mean reversion across national equity markets," Journal of Empirical Finance, Elsevier, vol. 13(1), pages 24-48, January.
    13. Heston, Steven L. & Sadka, Ronnie, 2008. "Seasonality in the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 87(2), pages 418-445, February.
    14. Minye Zhang & Yongheng Deng, 2010. "Is the Mean Return of Hotel Real Estate Stocks Apt to Overreact to Past Performance?," The Journal of Real Estate Finance and Economics, Springer, vol. 40(4), pages 497-543, May.
    15. Weber, Martin & Welfens, Frank, 2007. "How do Markets React to Fundamental Shocks? An Experimental Analysis on Underreaction and Momentum," Sonderforschungsbereich 504 Publications 07-42, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    16. Yukun Liu & Aleh Tsyvinski & Xi Wu, 2019. "Common Risk Factors in Cryptocurrency," NBER Working Papers 25882, National Bureau of Economic Research, Inc.
    17. Han, Yufeng & Zhou, Guofu & Zhu, Yingzi, 2016. "A trend factor: Any economic gains from using information over investment horizons?," Journal of Financial Economics, Elsevier, vol. 122(2), pages 352-375.
    18. Doron Avramov & Guy Kaplanski & Avanidhar Subrahmanyam, 2022. "Postfundamentals Price Drift in Capital Markets: A Regression Regularization Perspective," Management Science, INFORMS, vol. 68(10), pages 7658-7681, October.
    19. EOM, Cheoljun & EOM, Yunsung & PARK, Jong Won, 2024. "Intermediate cross-sectional prospect theory value in stock markets: A novel method," International Review of Financial Analysis, Elsevier, vol. 93(C).
    20. Hongwei Chuang, 2021. "Momentum Has Its Own Values," Working Papers EMS_2021_02, Research Institute, International University of Japan.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:ijfr11:v:6:y:2015:i:2:p:1-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://ijfr.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.