Contratum dominance over momentum and reverse: Evidence from the Iranian capital market

Document Type : Original Article

Authors
ali timori ashtiani 1
mohsen hamidian 2
seyedeh mahboobeh jafari 3
1 Faculty of Economics and Accounting, Islamic Azad University, South Tehran Branch, Tehran, Iran
2 Associate Professor, Department of Accounting, Islamic Azad University, South Tehran Branch, Tehran, Iran (Corresponding Author)
3 A faculty member of Islamic Azad University, South Tehran Branch
Abstract
Abstract:
The purpose of this study is to investigate the possibility of combining the ranking period and the maintenance period of classical momentum and contrarian strategies and evaluate the performance of portfolios resulting from hybrid strategies in comparison with classical strategies. For this purpose, using the information of 120 companies in the period 2011 to 2020, the amount of excess return, the explanatory power of excess return by the risk factors of the seven-factor model Fama and French and the explanatory power of future return by excess return of hybid strategy and classical strategy are evaluated and compared.
The results show that contratum (contractionary hybrid) strategy, which rank like contrarian strategies in the long run but are maintained in the medium term like momentum strategies, perform better than momentum and contrarin strategies. In addition, even after controlling risk factors (Fama and French seven-factor model), contratum, contrarian and momentum investment strategies in the Iranian capital market are profitable. Finally, the results of the present study support the explanatory power and more predictive power of the excess return of the contratum strategy than the classical strategies for future returns. Therefore, the contribution of the present study is to provide evidence of excess return and performance of the new hybrid strategy is much higher than the classic investment strategies proven in the Iran capital market.
Keywords
Keywords: Momentum Strategy
Contrarian Strategy
Hybrid Strategy
Excess Return
Fama and French Seven Factors Model
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