Volume-enhanced contrarian strategy in the Stock Exchange of Thailand

Abstract

This study investigates the return of the prior return-volume based long-term contrarian strategy and 52-week high price-volume based contrarian strategy in the Stock Exchange of Thailand (SET) over the period of 1988-2007. The evidence shows that the long-term (three years or more) loser (winner) with high past trading volume outperform loser (winner) with low past trading volume for both prior return-volume based and 52-week high price-volume based contrarian strategies. Moreover, the evidence shows that the using of past trading volume as a key analytical help improve the profitability of contrarian portfolios. A late stage contrarian strategy which buys high volume loser and sells low volume winner outperforms a simple contrarian strategy, whereas an early stage contrarian strategy which buys low volume loser and sells high volume winner underperforms. For prior return-volume based long-term contrarian strategy, the return of late stage portfolio remains highly positive even after controlling for market premium, size effect and book value effect (using Fama and French 3 factors model) whereas the excess return of late stage portfolio of 52-week high price-volume based long-term contrarian strategy after controlling for risks is much lower or even negative.