Can price reversals on Oslo Stock Exchange be exploited?

Abstract

We investigate if price reversals on the Oslo Stock Exchange can be exploited using a twofold method. Our method includes stock selection based on variance ratios and simulation of portfolio performance using a contrarian trading strategy. Existing evidence of mean reversion from major stock exchanges motivate our approach. Our results show consistently better performance for portfolios sorted by desirable variance ratios than for portfolios with undesirable variance ratios. However, most of these portfolios fail to produce excess profits after transaction costs.