An analysis of momentum and contrarian anomalies using an orthogonal portfolio approach
Publikation/Tidskrift/Serie: Applied Financial Economics Letters
Förlag: Routledge, Taylor & Francis Group
We use a latent factor approach to investigate if the momentum and contrarian profits, observed in the US stock market, should be considered as risk premiums or have nonrisk-based explanations. The model is also employed as a benchmark to assess the explanatory power of the traditional asset-pricing models in this context. Our findings show that the profits of the long-run contrarian strategy are related to some other background risk factors, whereas the momentum and the short-run contrarian profits are mostly nonrisk based. The latter finding mainly supports investors' behavioural irrationality as an explanation of these anomalies.
- ISSN: 1350-4851