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- Title
IS STOCK MARKET OVERREACTION PERSISTENT OVER TIME?
- Authors
Chen, Carl R.; Sauer, David A.
- Abstract
The article analyzes the stability and persistence of equity market overreaction in accordance with the recent findings reported by economist N. Chopra, J. Lakonishok, and J.R. Ritter. Not only is the re-examination of this issue important to the debate over market efficiency, it also has profound implications for the viability of the contrarian investment strategy. This paper is organized as follows: the following section presents the data sample and methodology, then empirical results are discussed, and the final section concludes. Although opponents of the overreaction hypothesis concentrate their arguments on the size effect and risk factor, all studies examine average portfolio returns over an extended period of time. In reality, if time-varying risk is an important issue in this debate, and expected market returns exhibit time-varying behavior, then time-series properties of the overreaction hypothesis should be closely scrutinized. All stocks that are continuously listed for the prior five years are ranked on the basis of their five-year buy-and-hold returns and assigned to one of twenty portfolios. Monthly post-ranking period returns are compounded to obtain annual portfolio returns.
- Subjects
STOCK exchanges; STABILITY (Mechanics); STOCKS (Finance); INVESTMENT policy; STRATEGIC planning; INVESTMENTS
- Publication
Journal of Business Finance & Accounting, 1997, Vol 24, Issue 1, p51
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/1468-5957.00094