Investigating the contrarian trading strategy performance in the Tehran stock exchange based on the firm's risk criteria

Subject Areas : Investments

Ebrahim Qashqai ¹ , Allah Karam Salehi ² , ali mahmoodirad ³

1 - Department of Management, MasjedSoleiman Branch, Islamic Azad University, Masjed Soleiman, Iran.
2 - Department of Accounting, MasjedSoleiman Branch, Islamic Azad University, Masjed Soleiman, Iran.
3 - Department of Applied Mathematics, MasjedSoleiman Branch, Islamic Azad University, Masjed Soleiman, Iran.

Received: 2022-12-13 Accepted : 2023-03-30 Published : 2023-03-21

Keywords: Financial Leverage, Credit Risk, Systematic Risk, Liquidity Risk, contrarian trading strategy,

Abstract :

Purpose: In traditional financial theory, the efficient market hypothesis states that market efficiency prevails in every stock exchange. However, evidence of market anomalies such as momentum effect and reversal effect exists. The aim of this study is to examine the performance of the reverse trading strategy under risk measures. To achieve this objective, four hypotheses were proposed.Methodology: This research employs a descriptive correlational method. The population of the study consists of all listed companies in the Tehran Stock Exchange during the period from 2013 to 2020. A systematic sampling technique was used to select a sample of 118 companies. Reverse profit is considered as the dependent variable, while systematic risk, liquidity risk, credit risk, and financial leverage are considered as explanatory variables.Findings: The findings indicate that systematic risk has a positive effect on reverse profit in all holding and formation periods. Liquidity risk does not have a significant impact on reverse profit. Credit risk and financial leverage have a positive effect on reverse profit. Furthermore, the results show that the influence of systematic risk, credit risk, and financial leverage on reverse profit is greater in the 24-month period compared to the 12-month and 36-month periods.Originality / Value: The results of this study provide valuable insights for portfolio investors and managers to consider company risks when investing through the reverse trading strategy. Additionally, market participants should focus on high levels of systematic risk, credit risk, and financial leverage when utilizing the reverse trading strategy, as these risk dimensions present opportunities for them to achieve extraordinary returns.

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