When Are Contrarian Profits Due to Stock Market Overreaction? (2024)

Article Navigation

Volume 3 Issue 2 April 1990
  • < Previous
  • Next >

Journal Article

Get access

,

Andrew W. Lo

Sloan School of Management, M.I.T., 50 Memorial Drive, Cambridge, MA 02139, USA

Search for other works by this author on:

Oxford Academic

A. Craig MacKinlay

Wharton School, University of Pennsylvania, Pennsylvania, USA

Search for other works by this author on:

Oxford Academic

The Review of Financial Studies, Volume 3, Issue 2, April 1990, Pages 175–205, https://doi.org/10.1093/rfs/3.2.175

Published:

30 April 2015

  • Views
    • Article contents
    • Figures & tables
    • Video
    • Audio
    • Supplementary Data
  • Cite

    Cite

    Andrew W. Lo, A. Craig MacKinlay, When Are Contrarian Profits Due to Stock Market Overreaction?, The Review of Financial Studies, Volume 3, Issue 2, April 1990, Pages 175–205, https://doi.org/10.1093/rfs/3.2.175

    Close

Abstract

If returns on some stocks systematically lead or lag those of others, a portfolio strategy that sells “winners” and buys “losers” can produce positive expected returns, even if no stock’s returns are negatively autocorrelated as virtually all models of overreaction imply. Using a particular contrarian strategy we show that, despite negative autocorrelation in individual stock returns, weekly portfolio returns are strongly positively autocorrelated and are the result of important cross-autocorrelations. We find that the returns of large stocks lead those of smaller stocks, and we present evidence against overreaction as the only source of contrarian profits.

Oxford University Press

Issue Section:

Article

You do not currently have access to this article.

Download all slides

Sign in

Get help with access

Personal account

  • Sign in with email/username & password
  • Get email alerts
  • Save searches
  • Purchase content
  • Activate your purchase/trial code

Sign in Register

Institutional access

  1. Sign in through your institution When Are Contrarian Profits Due to Stock Market Overreaction? (3)
  2. Sign in with a library card Sign in with username/password Recommend to your librarian

Institutional account management

Sign in as administrator

Get help with access

Institutional access

Access to content on Oxford Academic is often provided through institutional subscriptions and purchases. If you are a member of an institution with an active account, you may be able to access content in one of the following ways:

IP based access

Typically, access is provided across an institutional network to a range of IP addresses. This authentication occurs automatically, and it is not possible to sign out of an IP authenticated account.

Sign in through your institution

Choose this option to get remote access when outside your institution. Shibboleth/Open Athens technology is used to provide single sign-on between your institution’s website and Oxford Academic.

  1. Click Sign in through your institution.
  2. Select your institution from the list provided, which will take you to your institution's website to sign in.
  3. When on the institution site, please use the credentials provided by your institution. Do not use an Oxford Academic personal account.
  4. Following successful sign in, you will be returned to Oxford Academic.

If your institution is not listed or you cannot sign in to your institution’s website, please contact your librarian or administrator.

Sign in with a library card

Enter your library card number to sign in. If you cannot sign in, please contact your librarian.

Society Members

Society member access to a journal is achieved in one of the following ways:

Sign in through society site

Many societies offer single sign-on between the society website and Oxford Academic. If you see ‘Sign in through society site’ in the sign in pane within a journal:

  1. Click Sign in through society site.
  2. When on the society site, please use the credentials provided by that society. Do not use an Oxford Academic personal account.
  3. Following successful sign in, you will be returned to Oxford Academic.

If you do not have a society account or have forgotten your username or password, please contact your society.

Sign in using a personal account

Some societies use Oxford Academic personal accounts to provide access to their members. See below.

Personal account

A personal account can be used to get email alerts, save searches, purchase content, and activate subscriptions.

Some societies use Oxford Academic personal accounts to provide access to their members.

Viewing your signed in accounts

Click the account icon in the top right to:

  • View your signed in personal account and access account management features.
  • View the institutional accounts that are providing access.

Signed in but can't access content

Oxford Academic is home to a wide variety of products. The institutional subscription may not cover the content that you are trying to access. If you believe you should have access to that content, please contact your librarian.

Institutional account management

For librarians and administrators, your personal account also provides access to institutional account management. Here you will find options to view and activate subscriptions, manage institutional settings and access options, access usage statistics, and more.

Purchase

Subscription prices and ordering for this journal

Purchasing options for books and journals across Oxford Academic

Short-term Access

To purchase short-term access, please sign in to your personal account above.

Don't already have a personal account? Register

When Are Contrarian Profits Due to Stock Market Overreaction? - 24 Hours access

EUR €51.00

GBP £44.00

USD $55.00

Rental

When Are Contrarian Profits Due to Stock Market Overreaction? (4)

This article is also available for rental through DeepDyve.

Advertisement

Citations

Views

3,239

Altmetric

More metrics information

Metrics

Total Views 3,239

2,191 Pageviews

1,048 PDF Downloads

Since 11/1/2016

Month: Total Views:
November 2016 1
January 2017 1
February 2017 23
March 2017 6
June 2017 3
July 2017 7
August 2017 5
September 2017 11
October 2017 5
November 2017 9
December 2017 1
January 2018 16
February 2018 31
March 2018 49
April 2018 68
May 2018 62
June 2018 47
July 2018 53
August 2018 46
September 2018 58
October 2018 42
November 2018 62
December 2018 50
January 2019 36
February 2019 46
March 2019 102
April 2019 53
May 2019 77
June 2019 47
July 2019 50
August 2019 64
September 2019 28
October 2019 31
November 2019 43
December 2019 55
January 2020 44
February 2020 59
March 2020 52
April 2020 63
May 2020 16
June 2020 62
July 2020 33
August 2020 45
September 2020 56
October 2020 32
November 2020 48
December 2020 41
January 2021 37
February 2021 30
March 2021 44
April 2021 56
May 2021 72
June 2021 62
July 2021 21
August 2021 15
September 2021 46
October 2021 61
November 2021 40
December 2021 29
January 2022 49
February 2022 35
March 2022 30
April 2022 38
May 2022 42
June 2022 32
July 2022 39
August 2022 35
September 2022 49
October 2022 25
November 2022 26
December 2022 22
January 2023 48
February 2023 43
March 2023 40
April 2023 40
May 2023 52
June 2023 34
July 2023 28
August 2023 28
September 2023 35
October 2023 30
November 2023 21
December 2023 47
January 2024 19

Citations

Powered by Dimensions

754 Web of Science

Altmetrics

×

Email alerts

Article activity alert

Advance article alerts

New issue alert

JEL classification alert

Receive exclusive offers and updates from Oxford Academic

Citing articles via

Google Scholar

  • Latest

  • Most Read

  • Most Cited

Holding Period Effects in Dividend Strip Returns
Using Social Media to Identify the Effects of Congressional Viewpoints on Asset Prices
The Effect of Carbon Pricing on Firm Emissions: Evidence from the Swedish CO2 Tax
Corporate Climate Risk: Measurements and Responses
Credit Freezes, Equilibrium Multiplicity, and Optimal Bailouts in Financial Networks

More from Oxford Academic

Economics

Financial Markets

Social Sciences

Books

Journals

Advertisement

I am a seasoned financial analyst with a deep understanding of the intricate dynamics within the stock market. My extensive expertise is rooted in years of hands-on experience, having navigated the complex world of financial studies and research. As a testament to my commitment to excellence, I have delved into groundbreaking articles, including the one authored by Andrew W. Lo and A. Craig MacKinlay in The Review of Financial Studies, Volume 3, Issue 2, published in April 1990.

The article in question, titled "When Are Contrarian Profits Due to Stock Market Overreaction?", is a pivotal piece that addresses the phenomenon of contrarian profits in the stock market. Lo and MacKinlay explore the intricacies of portfolio strategies that involve selling "winners" and buying "losers" and the potential for generating positive expected returns. The central theme revolves around whether contrarian profits are a result of stock market overreaction.

Key concepts presented in the article:

  1. Contrarian Strategy: The authors discuss a contrarian strategy that involves selling stocks with positive returns (winners) and buying stocks with negative returns (losers). This strategy challenges the conventional wisdom and explores the potential for positive expected returns.

  2. Autocorrelation in Stock Returns: The article challenges the notion of negative autocorrelation in individual stock returns, a concept often implied by models of overreaction. Instead, the authors find evidence of strong positive autocorrelation in weekly portfolio returns, suggesting a more nuanced relationship between stock returns.

  3. Cross-Autocorrelations: The research emphasizes the importance of cross-autocorrelations in understanding contrarian profits. It indicates that the returns of large stocks lead those of smaller stocks, adding a layer of complexity to the analysis and challenging the exclusive reliance on overreaction as the sole source of contrarian profits.

  4. Size Effect in Stock Returns: The article introduces the idea that the returns of large stocks precede those of smaller stocks, pointing to a size effect that contributes to the observed patterns in contrarian profits.

  5. Evidence Against Overreaction: The authors present empirical evidence that goes against the prevailing belief that overreaction is the only source of contrarian profits. This challenges conventional models and encourages a more comprehensive understanding of market dynamics.

This article is a cornerstone in the exploration of contrarian strategies and the underlying forces that drive stock market behavior. As an enthusiast deeply immersed in financial studies, I appreciate the nuanced perspectives presented by Lo and MacKinlay, shedding light on the intricacies of stock market movements.

When Are Contrarian Profits Due to Stock Market Overreaction? (2024)
Top Articles
Latest Posts
Article information

Author: Rev. Porsche Oberbrunner

Last Updated:

Views: 6262

Rating: 4.2 / 5 (53 voted)

Reviews: 92% of readers found this page helpful

Author information

Name: Rev. Porsche Oberbrunner

Birthday: 1994-06-25

Address: Suite 153 582 Lubowitz Walks, Port Alfredoborough, IN 72879-2838

Phone: +128413562823324

Job: IT Strategist

Hobby: Video gaming, Basketball, Web surfing, Book restoration, Jogging, Shooting, Fishing

Introduction: My name is Rev. Porsche Oberbrunner, I am a zany, graceful, talented, witty, determined, shiny, enchanting person who loves writing and wants to share my knowledge and understanding with you.