Abstract
Based on the approach proposed by Blitz et al. (J Financ Markets 16:477–504, 2013 [3]), we examined the performance of the firm portfolios constructed by the residual returns from the Fama-French three factor model (Fama and French in J Financ Econ 33:3–56, 1993 [10]) by sampling the listed firms in the Taiwan Stock Market from 1990 to 2017. We show that the performance of the conventional reversal and residual reversal strategies are not significant in the Taiwan stock market. In addition, the smallest-residual portfolio outperforms conventional return reversal portfolios either with equal weighting or capital weighting. The smallest-residual portfolio also exhibits dynamic factor exposures much closer to the factor-neutral portfolio, but its dynamic factor exposures cannot fully account for the abnormal profitability.
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Notes
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Reference [3] use only two groups and define the loser (winner) portfolio as the portfolio consisting of all the stock returns with returns lower (higher) than the cross-sectional average stock returns in previous month.
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Tzang, SW., Chang, CP., Zubairi, Y.Z., Tsai, YS. (2020). Residual Reversal Strategy: Empirical Evidence in the Taiwan Stock Market. In: Barolli, L., Xhafa, F., Hussain, O. (eds) Innovative Mobile and Internet Services in Ubiquitous Computing . IMIS 2019. Advances in Intelligent Systems and Computing, vol 994. Springer, Cham. https://doi.org/10.1007/978-3-030-22263-5_66
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