Reversal of Stock Market Trends: Contrarian Strategies in the Moroccan Context

Abstract

This study aims to test the profitability of the contrarian strategy in the Moroccan stock market. This counter-trend strategy involves buying losing stocks and selling winning ones. The underlying intuition is to take advantage of the trend reversal that will occur to correct the discrepancies between stock prices and their fundamental values, caused by an overreaction of the market. This leads us to compare the profitability of this strategy with that of the Momentum strategy. The trend reversal was analyzed using 76 Moroccan stocks over a one-year period, divided into a formation period and a holding period. Our study found that one-third of the stocks listed on the Casablanca Stock Exchange exhibit a price reversal behavior.