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Stock index reaction to large price changes: Evidence from major Asian stock indexes

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  • Mazouz, Khelifa
  • Joseph, Nathan Lael
  • Palliere, Clement
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    Abstract

    Abstract We examine the short-term price behavior of ten Asian stock market indexes following large price changes or "shocks". Under the standard OLS regression, there is stronger support for return continuations particularly following positive and negative price shocks of less than 10% in absolute size. The results under the GJR-GARCH method provide stronger support for market efficiency, especially for large price shocks. For example, for the Hong Kong stock index, negative shocks of less than -Â 5% but more than -Â 10% generate a significant one day cumulative abnormal return (CAR) of -Â 0.754% under the OLS method, but an insignificant CAR of 0.022% under the GJR-GARCH. We find no support for the uncertainty information hypothesis. Furthermore, the CARs following the period after the Asian financial crisis adjust more quickly to price shocks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

    Volume (Year): 17 (2009)
    Issue (Month): 4 (September)
    Pages: 444-459

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    Handle: RePEc:eee:pacfin:v:17:y:2009:i:4:p:444-459

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    Web page: http://www.elsevier.com/locate/pacfin

    Related research

    Keywords: Market efficiency Overreaction Return continuations Uncertainty information hypothesis Heteroscedasticity;

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    Cited by:
    1. Mazouz, Khelifa & Wang, Jian, 2014. "Are commodity futures markets short-term efficient? An empirical investigation," 88th Annual Conference, April 9-11, 2014, AgroParisTech, Paris, France 169763, Agricultural Economics Society.
    2. Tse, Chin-Bun & Rodgers, Timothy & Niklewski, Jacek, 2014. "The 2007 financial crisis and the UK residential housing market: Did the relationship between interest rates and house prices change?," Economic Modelling, Elsevier, vol. 37(C), pages 518-530.
    3. Joyce Hsieh & Chien-Chung Nieh, 2010. "An overview of Asian equity markets," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 24(2), pages 19-51, November.
    4. Amini, Shima & Gebka, Bartosz & Hudson, Robert & Keasey, Kevin, 2013. "A review of the international literature on the short term predictability of stock prices conditional on large prior price changes: Microstructure, behavioral and risk related explanations," International Review of Financial Analysis, Elsevier, vol. 26(C), pages 1-17.

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