Contrarian Investment Strategies In A European Context

Abstract

Contrarian Investment Strategies in a European ContextBrouwer, I.; van der Put, J.; Veld, C.H. Publication date: 1996Link to publication Citation for published version (APA):Brouwer, I., van der Put, J., & Veld, C. H. (1996). Contrarian Investment Strategies in a European Context. (CentER Discussion Paper; Vol. 1996-36). Tilburg: Finance. General rightsCopyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights.-Users may download and print one copy of any publication from the public portal for the purpose of private study or research -You may not further distribute the material or use it for any profit-making activity or commercial gain -You may freely distribute the URL identifying the publication in the public portal Take down policyIf you believe that this document breaches copyright, please contact us providing details, and we will remove access to the work immediately and investigate your claim. CONTRARIAN INVESTMENT STRATEGIES IN A EUROPEAN CONTEXT AbstractIn this paper we study value strategies for four European countries (France, Germany, the Netherlands and the United Kingdom). We find an outperformance for all four value variables which are investigated: the earnings-to-price (E/P) ratio, the cash-flow-to-price (CF/P) ratio, the book-to-market (B/M) ratio and the dividend yield. This outperformance is especially remarkable for the CF/P ratio, which amounts to 20.8% between the top and bottom quintiles in an univariate model. In a regression analysis, in which all four value variables as well as a correction for the size effect are taken into account, we find a difference of 11.8% for the CF/P ratio. We demonstrate that this result can not be explained by risk differences alone. Our findings confirm the outperformance of value strategies as found earlier by Chan, Hamao and Lakonishok (1991) and Lakonishok, Shleifer and Vishny (1994) for Japan and the United States respectively.

Are Contrarian Investment Strategies Profitable in the London Stock Exchange? Where do These Profits Come From?

“…Furthermore, our results in general are in line with other UK long-term contrarian studies by Poterba and Summers (1988), Brouwer, Van Der Put & Veld (1997), Richards (1997), Dissanaike (1997), and Balvers, Wu, and Gilliland (1999). As regards the model used, the paper's results suggest that the three-factor model is superior to the single-factor model, although not perfect itself (for example, Davis, Fama, and French (2000) suggest that the FF three-factor model is only an incorrect representation of reality although a quite good one.…”

“…Furthermore, profits decline as one moves from the smallest stock sub-sample to larger stock sub-samples. The paper's findings so far on short-term profitability are in line in most cases with JT for the US market, and consistent with long-term findings for the UK market (Dissanaike, 1997, Van Der Put & Veld, 1997. 11 The increase in profits when risk-adjusted returns are employed could be related with the increase in the number of stocks that are negatively correlated as one moves from one sample to the other (tables 3a and 3b).…”

Insider Trading in Glamour and Value Firms

“…Some authors (Kothari et al, 1995;Black, 1993) and MacKinlay, 1995)) have argued that these observed premiums are artefacts of the methodology adopted, due to survivorship bias, beta mis-measurement, data snooping and is sample-specific, However the wealth of international evidence would discount this argument. The "value" effect has been observed in Japan (Chan et al 1991), in European countries (Capaul et al, 1993 andBrouwer et al, 1997) and in the UK by Levis and Liodakis (1999), Gregory et al (2001) and Dimson et al (2003).…”

Investment Performance of Residual Income Valuation Models on the German Stock Market

“…Indeed, the empirical literature shows that those strategies offer higher returns than an investment in the market as a whole. Only a few studies are mentioned here: 16 Fama and French (1992), Lakonishok, Shleifer, and Vishny (1994), Chan, Hamao, and Lakonishok (1991), Wallmeier (2000), Brouwer, van der Put, and Veld (1996) or Kotkamp and Otte (2001).…”