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Long-Term Market Overreaction or Biases in Computed Returns?

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Author Info
 Conrad, Jennifer
Kaul, Gautam

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Abstract

The authors show that the returns to the typical long-term contrarian strategy implemented in previous studies are upwardly biased because they are calculated by cumulating single-per iod (monthly) returns over long intervals. The cumulation process not on ly cumulates "true" returns but also the upward bias in single-period reutrns induced by measurement errors. The authors also show that the remaining "true" returns to loser or winner firms have no relation to overreaction. This study has important implicati ons for event studies that use cumulative returns to assess the impact o f information events. Copyright 1993 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 48 (1993)
Issue (Month): 1 (March)
Pages: 39-63
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Handle: RePEc:bla:jfinan:v:48:y:1993:i:1:p:39-63

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  6. Josef Lakonishok & Inmoo Lee, 1998. "Are Insiders' Trades Informative?," NBER Working Papers 6656, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Dimitris Kenourgios & Nikolaos Pavlidis, 2005. "Individual Analysts’ Earnings Forecasts: Evidence for Overreaction in the UK Stock Market," Finance 0512011, EconWPA. [Downloadable!]
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