Contrarian Investment, Extrapolation, and Risk

1994/12/01 by Josef Lakonishok, JOSEF LAKONISHOK, ANDREI SHLEIFER +2 · 8 citations
Business, Management and Accounting · Economics, Econometrics and Finance · Mathematics · #Business #Capital Investment and Risk Analysis #Computer science #Contrarian #Econometrics #Economics #Extrapolation #Financial Reporting and Valuation Research #Financial economics #Investment (military) #Investment strategy #Mathematics #Monetary economics #Political science #Risk analysis (engineering) #Statistics

paper · open access · doi:10.1111/j.1540-6261.1994.tb04772.x

published in The Journal of Finance 49(5), 1541-1578 (Wiley)

openalex publication_date 1994/12/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/22

Abstract

ABSTRACT For many years, scholars and investment professionals have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This article provides evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier.

Citations

• Risk, Return, and Equilibrium: Empirical Tests
• Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
• Does the Stock Market Overreact?

Cited by

• Quantum Kernels and the Cross-Section of Stock Returns: Anatomy of a Vanishing Advantage
• Residual Income Valuation and Stock Returns: Evidence from a Value-to-Price Investment Strategy
• The Role of Intangible Investment in Predicting Stock Returns: Six Decades of Evidence
• Deciphering equity style returns: An analysis of size and value anomalies in the Pakistani stock exchange. [europepmc]
• Navigating the factor zoo around the world: an institutional investor perspective. [europepmc]
• Hybrid CNN-LSTM-GNN Neural Network for A-Share Stock Prediction. [europepmc]
• Market-to-book ratio in stochastic portfolio theory [europepmc]
• Market Structure and Firm Level Returns: The Indian Evidence [europepmc]

Related

• Residual Income Valuation and Stock Returns: Evidence from a Value-to-Price Investment Strategy
• The Value Premium
• Where Is the Risk in Value? Evidence from a Market‐to‐Book Decomposition
• Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
• The Excess Returns of "Quality" Stocks: A Behavioral Anomaly