Tests of the Contrarian Investment Strategy Evidence from the French and German stock markets

The Contrarian Investment Strategy (CIS) implies simultaneously buying previous losers and selling previous winners. This paper examines the CIS as first proposed by DeBondt and Thaler (1985)(Journal of Finance 40, 793–808) in an effort to expand and complement existing research. Results from our risk-adjusted, nonparametric, multifactor, bootstrap-simulated estimates show that, for both the French and German stock markets, short-term contrarian portfolios work best. Overall, the highest contrarian profits are obtained in the short run and the profits decrease over time. In addition, higher returns are not correlated to increases in the risk coefficients, which is consistent with investor overreaction.