Three-Year Reversal Strategy Across Country Equity ETFs

Summary

The document describes a contrarian strategy using 16 single-country equity ETFs. Rank countries by their returns over the previous 36 months, buy the four weakest performers, and short the four strongest; rebalance every three years. The cited research reports that international equity index reversals are strongest around this horizon, with estimated reversion half-lives in related studies generally measured in years. Other cited work suggests combining momentum and contrarian signals may outperform either approach alone.

The evidence remains uncertain. The central study finds no clear support for the idea that prior loser markets earn more because they carry greater risk, while reversals appear larger in smaller markets. Limited country coverage and sample length, market integration, and the absence of a settled pricing model constrain explanations. Other research reports that mean reversion varies over time, and the document notes that long-horizon reversal exposure does not hedge broad equity risk during bear markets. Results from historical studies may not persist or translate directly into current ETF trading.

Key ideas

• Rank 16 country equity ETFs by their trailing 36-month returns.
• Go long the four weakest countries and short the four strongest, rebalancing every three years.
• The cited research finds evidence of long-horizon reversals, with effects strongest near a three-year horizon.
• The studies do not establish a definitive cause, and risk differences do not appear to explain the reversals.
• Mean reversion varies across samples and periods, and this strategy is not presented as a bear-market hedge.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.