1. Behavioral Finance
Economics 437

2. Ball, Kothari, Shanken 1994
“We study problems in measuring the performance of contrarian portfolios, similar to those examined by DeBondt and Thaler (1985, 1987), Chan (1988), Ball and Kothari (1989), ‘Chopra, Lakonishok, and Ritter (1992), and Jones (1993), among others. Measurement problems are apparent in both raw and abnormal five-year buy-and-hold returns. The problems are unusually severe for contrarian portfolios because they invest in extremely low-priced ‘loser’ stocks. Still, many of the issues we raise should be relevant to performance measurement in general.”
Surprisingly, ignoring transaction costs and simply changing the month in which trading is initiated (from June-end to December-end) drastically reduces the (raw and abnormal) returns of the lower-priced ‘loser’ stocks.

3. Chordia-Shivakumar, 2006
Is it “pricing momentum” or “earnings momentum” that drives the “under-reaction” phenomenon?
Conclude the earnings momentum is the key factor.
Price momentum variables are a “noisy proxy” for earnings momentum

4. “We find that the determinants of the cross-section of expected stock returns are stable in their identity and influence from period to period and from country to country. Out-of-sample predictions of expected return are strongly and consistently accurate. Two findings distinguish this paper from others in the contemporary literature: First, stocks with higher expected and realized rates of return are unambiguously lower in risk than stocks with lower returns. Second, the important determinants of expected stock returns
are strikingly common to the major equity markets of the world. Overall, the results seem to reveal a major failure in the Efficient Markets Hypothesis.”
From the Abstract of the Haugen, Baker Paper

5. Haugen-Baker, 1996 Great summary of the literature A Grand Synthesis
Use multi-factor model to create a “generalized” value portfolio
Incorporate J-T effects
20 percent outperformance for H-B synthesis
Data used from five countries: France, Germany, Japan, UK, US

6. Hanna-Ready, 2005
Dispute H-B results due to monthly turnover (40 percent) in HB rebalancing (causes high transaction costs)
Conclude that six month rebalancing of F-F portfolios is best
Most of H-B results come from J-T. J-T results fall if transaction costs considered
Cannot explain why F-F does so well

7. Conrad, Kaul 1993
In this paper, we show that the returns to long-term contrarian strategies implemented in previous studies are upwardly biased because they are calculated by cumulating single-period (monthly) returns over long periods. The cumulation process not only cumulates true returns, but also the upward bias in single-period returns induced by measurement errors (for example, due to the bid-ask effect). Using a buy and hold performance measure, we show that all non-January returns to long-term contrarian strategies are eliminated. The actual return to an arbitrage portfolio of losers and winners is solely due to January returns, and we show that this "January effect" has no relation to past performance of the securities. Hence, there is no evidence of market overreaction:

8. The End