A Study on the Correlation between Contrarian Investment Strategy and Investors Overreaction

• Main Authors: HUANG, PEI-HSUAN, 黃姵瑄
• Other Authors: CHIANG, GENG-NAN
• Format: Others
• Language: zh-TW
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/4575j7

碩士 === 逢甲大學 === 財務金融學系 === 107 === This study uses the component stocks of Taiwan 50 index and Taiwan mid-cap 100 index from 2006 to 2018 annual data as a sample. Based on the company's market capitalization as a transition variable, we explore whether there is a non-linear relation- ship between the change in earnings per share, the change of fixed assets per total assets ratio, the P/B ratio of the last period, the turnover rate and the market adjusted re- turns(MAR). Observe whether there is an overreaction of investors when the market value of the company crosses this threshold? Then discuss the feasibility of the contrar- ian investment strategy. The results show that there is a threshold value of the compa- ny's market value, so that there is a non-linear relationship. The company's market cap- italization threshold estimated by the PSTR model is $26.8909 million. This study de- fines that the company's stock with a market capitalization of less than $26.8909 million is a small-value-type stock and the company's stock above $26.8909 million is a large- growth-type stocks. The study observed that the ante and post MAR of its companies undergoing different types of transition has a significant overreaction appearance. The ante and post MAR of the stocks which transfer from value to growth stocks, was changed from 45.67% to 6.31%, decreasing of 39.36%, and the turnover rate higher than the previous period (174.56% rose to 252.06%). Therefore, this change in reward can be attributed to the investor's overreaction, the same as Lakonishok et al. (1994). Based on this basis, a “contrarian investment strategy” was developed. During the sam- ple period, the short-selling from value to growth stocks and purchase of stocks from growth to value stocks, all positions achieved a total MAR of 7.33% per year. We also observed significant asymmetry in buy position (losers) and sell position (winners), 13.64% and -6.31% respectively consistence with the result from De Bondt and Thaler (1985). Therefore, the perfect explanation could not be obtained in the contrarian strat- egy in the sell position (winner). Although the sell position did observe a very signifi- cant overreaction compared with the previous period and a total MAR was reduced by 45.67% to 6.31%.