On December 31, 1932, and on each December 31 thereafter through 1977, DeBondt and Thaler selected from all stocks listed on the NYSE, a total of 46 separate experiments, the 35 worst performing and 35 best performing stocks over the preceding five years. For the worst performing stocks the average price decline was 45%. The investment results of the worst performing and best performing stocks were compared to a market index, the equal weighted investment results of all stocks listed on the NYSE. The worst performing stocks over the preceding five-year period produced average cumulative returns of 18% in excess of the market index 17 months after portfolio formation, a compound annual return in excess of the market index of 12.2%. The best performing stocks over the preceding five years produced average cumulative returns of about 6% less than the market index after 17 months, a compounded annual negative return of -4.3% versus the market index.
DeBondt and Thaler also tested portfolios of worst and best performing stocks based on investment returns over the prior three years and found similar significant excess positive returns for the worst performing stocks and similar below market returns for the best performing stocks.
Source: What has worked in investing