Application of Momentum and Contrarian Strategies in Tehran Stock Exchange (TSE)

Two techniques which are used in stock markets and most investigators and market analysts used are contrarian and momentum investing strategies. These strategies help investors to predict future performance based on past performance. Momentum investing strategy move the same way as the market stock move. In contrast, contrarian investing strategy acts vice versa. In this paper, for the period of 2005- 2007 different formation periods (1 to 6 month) and holding periods (1 to 36 month) are examined. The results show each strategy is profitable in a specific formation periods and holding periods. For formation periods from 1 to 4 month, momentum strategy is profitable and for formation periods from 5 and 6 month, contrarian strategy creates profitable portfolios. The best momentum effect is seen in formation periods of 4 month and holding periods of 36 month. Also, the best contrarian effect is seen in formation periods of 5 month and holding periods of 35 month.