Return Percentile: A Momentum-Contrarian Approach to Technical Analysis

We combine the momentum and contrarian approaches, using relative strength of individual stocks in the market, to develop a robust indicator called return percentile. It picks up those stocks which have been performing well over an intermediate-term window, but have underperformed in a short-term window. Using nine-year Indian stocks data, we find that our momentum-contrarian approach provides high returns irrespective of the holding period horizon (monthly, quarterly or annual). The results suggest that the contrarian approach can provide high returns, even in relatively short-term horizon, if applied with robust indicators like return percentile.