Filetype pdf does the stock market overreact

In two papers, De Bondt and Thaler [], [] investigated a simple stock market trading strategy on the basis of the past half century of data. They were motivated by research in cognitive … Expand.

Behavioral Finance aims to explain empirical anomalies by introducing investor psychology as a determinant of asset pricing. Two kinds of anomalies, namely underreaction and overreaction, have been … Expand. View 8 excerpts, cites background. The overreaction hypothesis: an examination in the Irish Stock Market. The ability of financial markets to interpret information quickly and accurately has been the subject of considerable academic and professional debate for over thirty years.

Initially, the Efficient … Expand. View 7 excerpts, cites background and methods. This study examines whether security analysts underreact or overreact to prior earnings information, and whether any such behavior could explain previously documented anomalous stock price movements.

Stock market efficiency: an autopsy? This article assesses the current state of the efficient market hypothesis, which was the conventional wisdom among academic economists in the s and most of the s. It concludes that empirical … Expand. Investors are told to be overreacting when their sentiment drives the price of a certain security up down enough to make it the biggest winners loser , in most cases considering this overreaction … Expand.

View 7 excerpts, cites methods, background and results. Misspecification of capital asset pricing : Empirical anomalies based on earnings' yields and market values. This study documents empirical anomalies which suggest that either the simple one-period capital asset pricing model CAPM is misspecified or that capital markets are inefficient.

In particular, … Expand. View 2 excerpts, references background. While there is … Expand. View 1 excerpt, references background. Economists generally attribute considerable rationality to the agents in their models.

The recent popularity of rational expectations models is more an example of a general tendency than a radical … Expand. The relationship between earnings' yield, market value and return for NYSE common stocks: Further evidence. Abstract The empirical relationship between earnings' yield, firm size and returns on the common stock of NYSE firms is examined in this paper.

Evidence is provided that daily abnormal return distributions in … Expand. Risk Perception in Psychology and Economics. Abstract : The concept of rationality has been basic to most economic analysis. Its content has been successively refined over the generations. As applied to the static world of certainty, it has … Expand. Note on the behavior of residual security returns for winner and loser portfolios.

Abstract Portfolios are formed directly and exclusively upon residual return behavior in the months prior to portfolio formation. The empirical behavior of residual return in the post-formation … Expand.

View 1 excerpt, references methods. The anomalous stock market behavior of small firms in January: Empirical tests for tax-loss selling effects. Abstract Small firms experience large returns in January and exceptionally large returns during the first few trading days of January.

The empirical tests indicate that the abnormally high returns … Expand. Anomalies in relationships between securities' yields and yield-surrogates. The New Contrarian Investment Strategy.

While we are highly sensitive to these issues, we do not have drbondt space wnd address them here. Clearly,the successive 46 yearly selections are not independent. We use information technology and tools to increase productivity and facilitate new forms of scholarship.

Empirical Tests The empirical testing proceduresare a variant on a design originally proposed by Beaver and Landsman [5] in a different context. They conclude that the existence of some rational agents is not sufficient to guarantee a rational expectations equilibrium in an economy with some of what they call quasi-rationalagents. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive.

Therefore,we will only report the results based on market-adjusted excess returns. Both hypotheses imply a violation of weak-form fhaler efficiency. We begin by describing briefly the individual and market behavior that piqued our interest. If some or all of the raw return data beyond month 85 are missing, the residual returns are calculated up to that point. They are consistent with the overreaction debobdt.

The effect is observed as late as five Januaries after portfolio formation! While the overreactionhypothesis has considerablea priori appeal,the obvious question to ask is: Every Decemberbetween andwinner and loser portfolios are formed on the basis of residual return behaviorover the previous five years.

North-Holland, reprint of edition. A Test of the Efficient MarketHypothesis. The formation month for these portfolios is the month of Decemher in all uneven years hetween and With respect the PIE effect, our results support the price-ratio hypothesis whereas low discussed in the introduction,i. Two specific examples of the research to which Arrowwas referringare the excess volatility of security prices and the so-called price earnings ratio anomaly.

The problem is particularlysevere with respect to the winner portfolio. Journal of Financial Economics 12 June The next section describes the actual empirical tests we have performed. Discussion Several aspects of the research design deserve some further comment.

For a formation period as short as one year, no reversal is observed at all. However, thaleer is not actually observed. Firms in the top 35 stocks or the top dbondt stocks, or the top decile are assigned to the winner portfolio W; firms in the bottom 35 stocks or the bottom 50 stocks, or the bottom decile to the loser portfolio L.

Length of Formation 0. An easy way to generate more less extreme observations is to lengthen shorten the portfolio formationperiod;alternatively, for any given formation period say, two yearswe may compare the test period performance of less versus more extreme portfolios, e. Reinganum [21] has claimed that the thaller firm effect subsumes the PIE effect and that both are related to the same set of missing and againunknown factors. Persistently, losers earn exceptionally large January returns while winners do not.

The term overreaction carries with it an implicit comparison to some degree of reaction that is consideredto be appropriate.