The Profitability of Contrarian and Momentum Strategies: Evidence from Emergent Markets

Abstract

The profitability of contrarian and momentum strategies has been the subject of numerous research studies. In this paper, we have evaluated the presence of the momentum and the contrarian strategies in the Brazilian and Istanbul stock exchanges and aim to assess which of the strategies is most profitable for the investors. This study is done to provide investors and the research area with updated, pertinent results and help the process of decision-making at different time horizons. A quantitative study following Jegadeesh and Titman's (1993) approach is employed. The study is conducted over two-time horizons: short- and long-term, 2 and 8 years, respectively. The findings of the empirical study have shown the effective existence of the momentum strategy and the contrarian strategy in selected Stock Markets. Also, the findings demonstrate that momentum strategies are ideal for generating a maximum positive return in the long term in BIST 100, while the contrarian strategies are more exhibited in the short term for BOVESPA and the long-term trend.