Information is needed to invest in stock exchange. Investors need
information to analyze a stock before finally decide to buy or sell stocks.
However, many research show several phenomena that are inconsistent with the
efficient market hypothesis, one of those phenomenon is return reversal. This
phenomenon is called a winner-loser anomaly when stocks extremely positive
abnormal return (winner) or extremely negative abnormal return (loser)
experience extended reversal, so that loser can outperform winner. The presence
of this anomaly creates the contrarian investment strategy: buy loser stocks and
sell-short the winner stock.
The purpose of this research is to test contrarian investment strategy can
be applied in the Indonesian capital market, especially companies Compass 100.
Using data from January 2008 until December 2010 and covers the period of
formation and testing for six months, this research found that the reversal effect
occurs for portfolios formed based on the abnormal return but did not found the
same thing for the portfolios are formed based on size, PBV and PER. Discovery
of reversal effect in both groups of stocks may mean that the test period based on
abnormal returns, contrarian investment strategy can be applied in the
Indonesian capital market, especially companies Kompas 100 the period 2008 to
2010
