A number of studies have separately identified mean reversion and momentum. This paper considers these effects jointly: potential for mean reversion and momentum is combined into one indicator, interpretable as an expected return. Combination momentum-contrarian strategies, used to select from among 18 developed equity markets at a monthly frequency, outperform both pure momentum and pure mean reversion strategies. A breakdown of the combination strategies indicates that both extreme high-expected-return and low-expected-return strategies rely heavily on country-indexes with higher standard deviation of return, smaller firm size, and lower number of firms. These observations suggest a mispricing rather than risk-compensation explanation of excess returns, with overreaction tied to information-based neglect of countries with fewer and smaller firms.

Keywords: Mean Reversion, Momentum, International Asset Pricing, Investment Strategies, Overreaction Hypothesis