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An examination of investor reaction to unexpected political and economic events in Turkey

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  • Mehdian, Seyed
  • Nas, Tevfik
  • Perry, Mark J.
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    Abstract

    We investigate investor reaction to the arrival of unexpected information in Turkey from 1997 to 2004. Daily stock returns are used to test two behavioral hypotheses regarding investor reaction to news: The Overreaction Hypothesis (OH) and the Uncertain Information Hypothesis (UIH). We find no evidence of significant price reversals following the arrival of positive news in Turkey, as predicted by the OH. However, a corrective process of positive returns following favorable news exists, consistent with the UIH. These findings suggest that investors in Turkey systematically set security prices below their fundamental values in response to unexpected information, which is rational behavior in a country with a history of significant financial and economic uncertainties.

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    File URL: http://www.sciencedirect.com/science/article/B6W4F-4PNFV7P-6/1/f3b861e11b40365fe2dfe5f4a44e565e
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    Bibliographic Info

    Article provided by Elsevier in its journal Global Finance Journal.

    Volume (Year): 18 (2008)
    Issue (Month): 3 ()
    Pages: 337-350

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    Handle: RePEc:eee:glofin:v:18:y:2008:i:3:p:337-350

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    Web page: http://www.elsevier.com/locate/inca/620162

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    1. Hakan Berument & Onur Ince, 2005. "Effect of S&P500’s Return on Emerging Markets : Turkish Experience," Departmental Working Papers 0508, Bilkent University, Department of Economics.
    2. Brown, Keith C. & Harlow, W. V. & Tinic, Seha M., 1988. "Risk aversion, uncertain information, and market efficiency," Journal of Financial Economics, Elsevier, vol. 22(2), pages 355-385, December.
    3. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    4. Padmaja Kadiyala, 2004. "Investor Reaction to Corporate Event Announcements: Underreaction or Overreaction?," The Journal of Business, University of Chicago Press, vol. 77(2), pages 357-386, April.
    5. Ali F. Darrat & Omar M. Benkato, 2003. "Interdependence and Volatility Spillovers Under Market Liberalization: The Case of Istanbul Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30, pages 1089-1114.
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