Profitability of Momentum and Overreaction Trading Strategies in Switzerland Stock Market

Abstract

Following available literatures on overreaction hypothesis and momentum effect, this research examines the profitability of contrarian and momentum strategies within large cap/blue-chip stocks of Switzerland financial market. Using a high frequency tactical asset allocation, the winner stocks continued to yield a significant large return in one day after portfolio formation and the losers reported insignificant return, hence, momentum is found to be profitable strategy in one-day holding period with an average return of above 14% per annum. A significant contrarian profitability of over 5% is also observed in 3 and 10 days holding period. Furthermore, the result shows Friday and January effect within momentum return in one day holding period.