A Study of Contrarian and Momentum Strategies Based Portfolios in Indonesian Stock Market
Abstract
This paper attempts to examine the effectiveness of contrarian and momentum
strategy in Indonesian Stock Market by forming various portfolios on the basis of
formation period and holding period. The period of the study was conducted from
2011-2017 and the samples used in this study were stocks listed in EIDO index. In
measuring the effectiveness of both contrarian and momentum strategies, cumulative
abnormal returns of each stock were used as proxy of this research. Furthermore, to
increase the power of the test, this study applied two methods to evaluate the
performance to select winner and loser stocks. The first method used market-adjusted
model to calculate the abnormal return of the stock while the second method used
capital assets pricing model. Besides, this study used overlapping technique by
replicating the formation portfolio into 9 times over the period 2011-2013. The
results of the study document that the effectiveness of contrarian and momentum
strategy is sensitive toward the formation of portfolio and for how long portfolios
were held which means that not all formation and holding periods were proven to be
effective and significant to generate abnormal return. In the context of contrarian
strategy, the effectiveness to generate abnormal return is only proven to be significant
within 6 months portfolio formation with short-term 3 and 12 months holding period,
while momentum strategy is proven to be effective and significant to generate
abnormal return under 3 months portfolio formation for short-term horizons 3 month
holding period.
Collections
- Management [4527]