Comparison in Measuring Effectiveness of Momentum and Contrarian Trading Strategy in Indonesian Stock Exchange

INDONESIAN CAPITAL MARKET REVIEW • VOL.III • NO.2 2011

22 Pages Posted: 27 Sep 2019

See all articles by Rizky Luxianto

Rizky Luxianto

University of Indonesia - Faculty of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: 2011

Abstract

This paper wants to explore the effectiveness of momentum or contrarian strategy in Indonesian Stock Exchange using different methods in measuring the performance. The point of momentum or contrarian strategy is selecting winner (stocks with highest gain) or loser stocks (stocks with highest loss) and then buy or sell it based on the research result. This research employed three methods in measuring performance to select winner and loser stocks. The first method used cross section relative return, while the second method used cross section relative return plus risk component (return divided by standard deviation), and the third method employed historical relative return instead of cross section. The result is that, all of those three methods prove that momentum strategy is effectively applicable for winner stock, so in the next period winner stock will continue to make profit, while for loser stock, it is more effective to use contrarian strategy because in the next period, loser stock will rebound and make profit after suffering from high loss.

Keywords: momentum strategy, contrarian strategy, behavioral finance, stocks market

Suggested Citation

Luxianto, Rizky, Comparison in Measuring Effectiveness of Momentum and Contrarian Trading Strategy in Indonesian Stock Exchange (2011). INDONESIAN CAPITAL MARKET REVIEW • VOL.III • NO.2 2011, Available at SSRN: https://ssrn.com/abstract=3455854

Rizky Luxianto (Contact Author)

University of Indonesia - Faculty of Economics ( email )

Campus UI Depok
Depok, West Java 16424
Indonesia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
50
Abstract Views
322
PlumX Metrics