The paper by Andrew W. Lo and A. Craig MacKinlay challenges the common belief that contrarian investment strategies are profitable due to stock market overreaction. They argue that even if individual security returns are temporally independent, portfolio strategies that exploit return reversals can still earn positive expected profits due to cross-autocovariances. The authors provide a taxonomy of return-generating processes that yield positive or negative expected profits under a specific contrarian portfolio strategy. They use this taxonomy to reconcile the empirical findings of weak negative autocorrelation in individual stock returns with the strong positive autocorrelation in portfolio returns. The paper presents empirical evidence against overreaction as the primary source of contrarian profits and highlights the presence of important lead-lag relations across securities. The authors conclude that the profitability of contrarian strategies does not necessarily imply stock market overreaction and that the cross-effects among securities are a significant source of positive expected profits.The paper by Andrew W. Lo and A. Craig MacKinlay challenges the common belief that contrarian investment strategies are profitable due to stock market overreaction. They argue that even if individual security returns are temporally independent, portfolio strategies that exploit return reversals can still earn positive expected profits due to cross-autocovariances. The authors provide a taxonomy of return-generating processes that yield positive or negative expected profits under a specific contrarian portfolio strategy. They use this taxonomy to reconcile the empirical findings of weak negative autocorrelation in individual stock returns with the strong positive autocorrelation in portfolio returns. The paper presents empirical evidence against overreaction as the primary source of contrarian profits and highlights the presence of important lead-lag relations across securities. The authors conclude that the profitability of contrarian strategies does not necessarily imply stock market overreaction and that the cross-effects among securities are a significant source of positive expected profits.