This paper reexamines the profitability of loser, winner and contrarian
portfolios in the Chinese stock market using monthly data of all stocks traded
on the Shanghai Stock Exchange and Shenzhen Stock Exchange covering the period
from January 1997 to December 2012. We find evidence of short-term and
long-term contrarian profitability in the whole sample period when the
estimation and holding horizons are 1 month or longer than 12 months and the
annualized returns of contrarian portfolios increases with the estimation and
holding horizons. We perform subperiod analysis and find that the long-term
contrarian effect is significant in both bullish and bearish states while the
short-term contrarian effect disappears in bullish states. We compare the
performance of contrarian portfolios based on different grouping manners in the
estimation period and unveil that decile grouping outperforms quintile grouping
and tertile grouping, which is more evident and robust in the long run.
Generally, loser portfolios and winner portfolios have positive returns and
loser portfolios perform much better than winner portfolios. Both loser and
winner portfolios in bullish states perform better than those in the whole
sample period. In contrast, loser and winner portfolios have smaller returns in
bearish states in which loser portfolio returns are significant only in the
long term and winner portfolio returns become insignificant. These results are
robust to the one-month skipping between the estimation and holding periods and
for the two stock exchanges. Our findings show that the Chinese stock market is
not efficient in the weak form. These findings also have obvious practical
implications for financial practitioners.Comment: 24 pages (including 4 figures and 9 tables) + 5 supplementary figures
+ 10 supplementary table
