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Scholars Day 2005, Wednesday, April 13

Loser Stocks: A Post Portfolio Survival Strategy

Loser stocks represent the most undesirable firms in the financial market at a particular point in time. Investors tend to avoid these firms, thereby driving down their prices and returns. Sometimes loser stocks rebound from this period of dismal performance, whereas other losers fail altogether and stop trading. Independent analysts at The Value Line Investment Survey rank stocks on a scale from 1 to 5. This study analyzes stocks ranked as future losers by Value Line from 1995 to 2004, and documents the number of firms that survive a one-year holding period. An investment strategy is tested that buys loser stocks on the rebound 12 months after their negative rankings are posted. We suggest that these loser stocks dramatically reverse their previous performance as well as outperform firms that were previously categorized as winners. This may lend support to a strain of thought in the behavioral finance literature, which indicates that investors overreact.

Presenters: Ralph Trecartin (Faculty)
Shelli Ulrich (Undergraduate Student)
Topic: Business
Location: 105 Edwards
Time: 9:20 am (Session I)