Reverse Investment Strategy:Review of The Stock Market Literature

This article investigates the contrarian investment strategy as a guidance for earning abnormal returns. Contrarian investment guidance states that the stocks that had a successful performance in the past, to be sold and the stocks that had a poorperformance, to be bought. The base of contrarian investment guidance is that investment market shows excessive reaction to the new information. Because of the more reactive, investors determine the stock prices of successful companies upper that real price and unsuccessful companies lower than real price. In this case, return of pricesoccurred in the long time. That is why, contrarian investment strategy is advised in such cases. This study conductsresearches done in different countries in the field of excessive reaction and benefit of contrarian investment strategy. Most studiesconfirm excessive reaction and consider contrarian investment strategy as an effective one for earning excess returns.