An Investigation of Implementing Contrarian Trading Strategy in Tehran Stock Exchange (TSE)


In this study we investigate the possibility of earning abnormal returns through the use of contrarian trading strategy in Tehran Stock Exchange (TSE). Contrarian trading strategy states that stocks which had better performances in the past, should be sold and stocks that had poor performances, should be bought. This strategy is based on the belief that capital market shows overreaction to the recent information and determines the price of Winner stocks more than their real value and the price of less Losers than their real value. Consequently in the subsequent periods, market will recognize its mispricing and return reversal will be observed in these stocks. Five major industries of Tehran Stock Exchange (TSE) which were studied between the years of 1379 to 1384, formed statistical sample of this study. Statistical Method of T-test were used to analyze the gathered data. Results revealed that it is possible to increase return of investments on securities in the TSE through the use of contrarian investment strategy.