Overreaction, Delayed Reaction, and Contrarian Profits

This paper presents a decomposition of short-horizon contrarian profits into various sources based on an analysis os stock price reactions to common factors an firm-specific information. In sharp contrast with the conclusions in the extant literature, we find that the lead-lag structure in stock prices contributes less than 5% of the observed contrarian profits with most of the profits being attributable to stock price overreaction.