Do Contrarian Strategies Work Within Industries?

Abstract

Here is a different tack on the study of contrarian stocks. It attempts to cut across the traditional line of value and growth measures by analyzing the performance of favored and less attractive stocks within an industry (a relative rather than absolute value approach). The findings indicate that there is a regular mispricing of growth and value stocks within industries themselves. There is also evidence that relative value accounts for some variation in returns that absolute value does not. The results shown are consistent with mispricing, which is difficult to reconcile with risk-based explanations of contrarian effects.