Risk-adjusted Long-term Contrarian Profits: Evidence from Non-S&P 500 High Volume Stocks

Can trading volume help unravel the long-term overreaction puzzle? With portfolios of non-S&P 500 NYSE stocks, we show that (a) both the high- and low-volume (abnormal volume) contrarian portfolios earn a much higher market-adjusted excess return than the normal-volume contrarian ortfolio, (b) however, when leverage-induced risk is factored in, excess returns from contrarian portfolios with normal and low-volume stocks are insignificant, (c) only excess returns from high-volume contrarian stocks are significant and cannot be explained away by the time-varying risk and return framework, and (d) such highvolume, risk-adjusted excess returns arise mainly from winner (glamour) stocks.