Market anomalies during COVID-19: the case of Kuwait, a GCC emerging market

This study investigates the performance of a contrarian investment strategy in Kuwait’s market during the COVID-19 pandemic, focusing on the influence of pandemic-related variables on contrarian returns. The analysis reveals that the strategy produced statistically and economically significant positive returns both before and during the pandemic, with no significant differences between the two periods. An analysis incorporating COVID specific variables failed to explain the variation in contrarian returns. This suggests that broader market dynamics and behavioral factors, rather than pandemic-specific metrics, drove contrarian returns during COVID-19. The CAPM model analysis further demonstrated that the strategy continued to deliver positive risk-adjusted returns during the pre-COVID and COVID periods, highlighting its robustness. Post-COVID, contrarian returns became mixed and statistically insignificant, reflecting a shift in market conditions and a reduction in mispricing opportunities. A comparative analysis of the 2008 financial crisis revealed significant negative contrarian returns, highlighting how delayed policy interventions and increased systemic risks during 2008 contrasted sharply with the stabilizing effects of swift interventions during COVID-19. This research contributes to the behavioral finance literature by illustrating how crises and policy responses shape contrarian strategy effectiveness. The findings emphasize that while crises typically increase market inefficiencies, timely government interventions during COVID-19 mitigated overreactions.