Question

hedge funds profit from contrarian investment strategies. Is it possible that this contrarian strategies may actually help to bring market prices in line with underlying values by preventing prices from drifting too high or too low?

Answer 1

Contrarian investment strategies refers to investing in a way that is contrary or opposite to the market sentiment. For instance, when the market seems bullish, an investor may choose not to sell shares and instead hold it for long term investment.

Contrarian strategies refer to not following the social group and having a different investment strategy. However, the strategies are adopted by only a few hudge funds successfully who are less likely to impact the market sentiment and influence stock prices. Also, it is very difficult to maintain the strategies in the long run and less likely to prevent the prices from drifting too high or too low.