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Momentum, Contrarian, and the January Seasonality Explained

Last Updated on 10 February, 2024 by Rejaul Karim

In the intricate tapestry of stock trading strategies, Chelsea Yaqiong Yao unravels the threads of momentum, contrarianism, and the enigmatic January seasonality in her paper titled “Momentum, Contrarian, and the January Seasonality.”

Published in the Journal of Banking and Finance, this compelling work, spanning 42 pages, challenges the established notions surrounding two prominent trading strategies: long-term contrarian and intermediate-term momentum. Yao’s meticulous analysis unveils the veil over long-term contrarian success, attributing it to the classic January size effect rather than investor overreaction.

Simultaneously, she navigates the labyrinth of intermediate-term momentum, untangling its superior performance intricately woven with the strong January seasonality in the cross-section of returns. This paper not only reshapes perspectives on trading strategies but also underscores the crucial role of January dynamics in decoding the market’s intricate dance of returns.

Abstract Of Paper

This paper reexamines the apparent success of two prominent stock trading strategies: long-term contrarian and intermediate-term momentum. The paper demonstrates that long-term contrarian is entirely attributable to the classic January size effect, rather than to investor overreaction, as argued by De Bondt and Thaler (1985). Further, the paper also resolves the Novy-Marx (2011) concern about whether return autocorrelation “is really momentum” by demonstrating that the superior performance of intermediate-term momentum is due to strong January seasonality in the cross-section of returns. The implications are that long-term contrarian must be considered largely illusory, and intermediate-term momentum must take account of annual seasonalities in returns.

Original paper – Download PDF

Here you can download the PDF and original paper of Momentum, Contrarian, and the January Seasonality.

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Chelsea Yaqiong Yao
Lancaster University – Lancaster University Management School; New York University (NYU) – Leonard N. Stern School of Business


In conclusion, this study critically reassesses the efficacy of long-term contrarian and intermediate-term momentum trading strategies, unraveling key insights into their underlying drivers. The analysis illuminates that the perceived success of long-term contrarian strategies is intricately tied to the classic January size effect rather than being rooted in investor overreaction, challenging prior notions proposed by De Bondt and Thaler (1985).

Additionally, the research effectively addresses concerns raised by Novy-Marx (2011) regarding the nature of return autocorrelation in intermediate-term momentum, attributing its superior performance to robust January seasonality within the cross-section of returns.

These findings underscore the need for a nuanced understanding of annual seasonalities and challenge the conventional interpretations of long-term contrarian success, fostering a more refined comprehension of the dynamics governing these trading strategies.

Related Reading:

Fund and Subportfolio Momentum

Size Matters Everywhere: Decomposing the Small Country and Small Industry Premia


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