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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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  1. Kiseok Nam & Sei-Wan Kim & Augustine. Arize, 2006. "Mean Reversion of Short-Horizon Stock Returns: Asymmetry Property," Review of Quantitative Finance and Accounting, Springer, vol. 26(2), pages 137-163, March. [Downloadable!] (restricted)
  2. Chaoshin Chiao & David Cheng & Welfeng Hung, 2005. "Overreaction after Controlling for Size and Book-to-Market Effects and its Mimicking Portfolio in Japan," Review of Quantitative Finance and Accounting, Springer, vol. 24(1), pages 65-91, January. [Downloadable!] (restricted)
  3. Andrew Ang & Li Gu & Yael V. Hochberg, 2006. "Is IPO Underperformance a Peso Problem?," NBER Working Papers 12203, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. José M. Marín & Jacques Olivier, 2007. "The dog that did not bark: Insider trading and crashes," Working Papers 2007-20, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales. [Downloadable!]
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  5. Simon Gervais & Ron Kaniel & Dan Mingelgrin, . "The High Volume Return Premium," Rodney L. White Center for Financial Research Working Papers 01-99, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
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  6. Peter S. Yoo, 1994. "Age dependent portfolio selection," Working Papers 1994-003, Federal Reserve Bank of St. Louis. [Downloadable!]
  7. Louis K. C. Chan & Narasimhan Jegadeesh & Josef Lakonishok, 1995. "Momentum Strategies," NBER Working Papers 5375, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Thomas Schuster, 2003. "News Events and Price Movements. Price Effects of Economic and Non-Economic Publications in the News Media," Finance 0305009, EconWPA. [Downloadable!]
  9. Josef Lakonishok & Inmoo Lee, 1998. "Are Insiders' Trades Informative?," NBER Working Papers 6656, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Ron Bird & Lorenzo Casavecchia, 2008. "Conditional Style Rotation Model on Enhanced Value and Growth Portfolios: The European Experience," Working Paper Series 2, The Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology, Sydney. [Downloadable!]
  11. Jan Bo Jakobsen & Torben Voetmann, 2003. "Post-acquisition performance in the short and long run. Evidence from the Copenhagen Stock Exchange 1993-1997," European Journal of Finance, Taylor and Francis Journals, vol. 9(4), pages 323-342, August. [Downloadable!] (restricted)
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  12. Doran, James & Jiang, Danling & Peterson, David, 2008. "Gambling Preference and the New Year Effect of Assets with Lottery Features," MPRA Paper 9258, University Library of Munich, Germany, revised 10 Mar 2009. [Downloadable!]
  13. Walid Saleh, 2007. "Overreaction: the sensitivity of defining the duration of the formation period," Applied Financial Economics, Taylor and Francis Journals, vol. 17(1), pages 45-61, January. [Downloadable!] (restricted)
  14. Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Terence Tse, Khaled Soufani, 2001. "Wealth Effects of Takeovers in Merger Activity Eras: Empirical Evidence from the UK," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 8(3), pages 365-377, November. [Downloadable!] (restricted)
  16. Ana Paula Serra, 2002. "Event Study Tests: A brief survey," FEP Working Papers 117, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  17. 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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