Testing for overreaction and return continuations in stock price index returns

Joseph, Nathan Lael and Mazouz, Khelifa ORCID: https://orcid.org/0000-0001-6711-1715 2010. Testing for overreaction and return continuations in stock price index returns. International Journal of Strategic Decision Sciences 1 (2) , pp. 93-113. 10.4018/jsds.2010040105

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Abstract

In this paper, the authors examine the impacts of large price changes (or shocks) on the abnormal returns (ARs) of a set of 39 national stock indices. Their initial results support returns continuations for both positive and negative shocks in line with prior results. After controlling for market size, their findings provide support for over-reaction, return continuations and market efficiency, but these result depend on the magnitude of the price shocks. Whilst the market is efficient when the positive shocks are large, the market also over-reacts when negative shocks are large. To illustrate, for large stock markets that are more liquid, positive shocks of more than 5% generate an insignificant day one CAR of -0.004%, whilst negative shocks of more than 5% generate a positive and significant day one CAR of 0.662%. In contrast, positive (negative) shocks of less than 5% generate a significant one day CAR of 0.119% (-0.174%) for these same (large) stock markets.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
ISSN:	1947-8569
Last Modified:	27 Oct 2022 08:15
URI:	https://orca.cardiff.ac.uk/id/eprint/61685

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