Profitability of Reversals in Emerging Asian Economies: Role of Industries as Drivers
Abstract
The current study attempted to examine the predictive ability of industry-specific factors for contrarian strategy payoffs in the Asian emerging markets, that is, India, Pakistan, and Bangladesh. By employing portfolio formation and subsequent rebalancing methodology, the empirical findings provided evidence for short-term industry contrarian effect. Using the data spanning different market states, the study determined that industry contrarian effect was stronger during the Asian and global financial crisis. On the other hand, industry momentum effect was evident after the global financial crisis and during the COVID-19 epidemic. The overall findings imply that industrial aspect cannot be neglected while interpreting the returns of trading strategies in emerging markets. A market timing-based contrarian strategy incorporating industrial factors may create the possibilities of higher strategy returns. The findings imply that the emerging markets in South Asia are not weak-form efficient because various industry-related factors offer higher return opportunities to investors and fund managers.
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