The Journal of France analysts Josef Lakonishok, Andrei Shleifer and Robert W. Vishny have a look at value investing strategies that outperform the market such as contrarian investment, extrapolation, and risk. Regardless of the reason, some investors tend to get overly excited about stocks that have done very well in the past and buy them up, so that these “glamour” stocks become overpriced. Similarly, they over react to stocks that have done very badly, oversell them, and these out-of-favor “value” stocks become underpriced/ Contrarian investors bet against such naive investors. Because contrarian strategies invest disproportionately in stocks that are underpriced and underinvest in stocks that are overpriced they outperform the market.
