Long-Term Reversal, Size and Value Patterns: Evidence from Portfolio Study

Long-term price reversal pattern has been the subject of many financial researches. Fama and French (1996) argue that with controlling risk factors contained in the three - factor model, price reversal pattern becomes insignificant. In this study, using portfolio study approach, the 6 portfolios was formed based on market capitalization (size) and the B/M ratio and excess returns for each portfolio and risk factors SMB and HML was calculated. Then by using of stock cumulative returns in the past 12 months, quintile portfolios was formed and monthly returns and monthly excess returns of this portfolios and the "winner minus loser" (LMW) factor were obtained. By comparing the returns of loser and the winner Portfolios observed winning portfolio returns are statistically and economically greater than the loser portfolio returns. This indicates the presence of a long-term price reversal. Using excess returns of 6 portfolios formed on size-B/M ratio and 6 portfolios formed on the basis of past performance as left hand side variables in the four-factor and three-factor models, Or use of the excess returns the market portfolio, SMB, HML, and LMW as right hand side variables, Explanatory power of the three-factor and four-factor models was tested. The results showed that these models can’t remove the abnormal returns.