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Overreaction of Dow stocks

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  • Gary Smith

Abstract

Several studies have found mean reversion in monthly stock returns over long horizons. However, these studies can be challenged for several reasons, including the neglect or possible misspecification of risk premia. The current paper analyzes daily Dow returns over short horizons, which obviates the most serious issues in long-horizon studies using monthly data. There is strong evidence of overreaction in that large positive and (especially) negative returns tend to be followed by persistent, substantial, and statistically persuasive reversals over the next 10 days.

Suggested Citation

  • Gary Smith, 2016. "Overreaction of Dow stocks," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1251831-125, December.
    • Handle: RePEc:taf:oaefxx:v:4:y:2016:i:1:p:1251831
    DOI: 10.1080/23322039.2016.1251831
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    References listed on IDEAS

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