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Does the Tunisian Stock Market Overreact?

Author

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  • Fatma Hammami Dhouib

    (Doctorante en Sciences de Gestion, Faculté des Sciences économiques et de Gestion, Université de Sfax – Tunisie Laboratoire de Finance, de Comptabilité et d'Intermédiations Financière (LAFICOIF) à la Faculté des Sciences Economiques et de Gestion, Université Elmanar de Tunis – Tunisie)

  • Ezzeddine Abaoub

    (Professeur Agrégé en Sciences de Gestion, Faculté des Sciences Economiques et de Gestion, Université Elmanar de Tunis – Tunisie Laboratoire de Finance, de Comptabilité et d'Intermédiations Financière (LAFICOIF) à la Faculté des Sciences Economiques et de Gestion, Université Elmanar de Tunis – Tunisie)

Abstract

Research in experimental financial markets suggests that most people tend to overreact to unexpected, striking, and more recent news, and underreact to ordinary or non desirable new events. Many researchers document, as a result that, if one of these behavioral designs exist, then stock prices will follow a mean-reversion phenomenon due to investor's overreaction, and a momentum behavior due to investor's underreaction. This study investigates if such behavior affects stock prices on the Tunisian Stock Market. In other words, we tend to discover the eventual existence of return mean-reversion and/or momentum behavior on the Tunisian Stock Market over the period between January 1997 and December 2005. For this purpose, we have applied a contrarian strategy, which consists of buying the previous (12, 18, 24 and 36 months) loser portfolio and selling the past winner portfolio. Our results point out that, over periods of 18, 24 and 36 months, stock returns exhibit statistically significant mean-reversion phenomenon, while, over 12 months periods, stock returns present significant momentum behavior. This means that stock prices are predictable on the basis of their historical recordings without using any accounting data, in contrast to the weak-form efficient market hypothesis.

Suggested Citation

  • Fatma Hammami Dhouib & Ezzeddine Abaoub, 2007. "Does the Tunisian Stock Market Overreact?," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 3(2), pages 83-107.
    • Handle: RePEc:usm:journl:aamjaf00302_83-107
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    Citations

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    Cited by:

    1. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, September.
    2. Shangkari V. Anusakumar & Ruhani Ali, 2017. "Momentum and Investor Sentiment: Evidence from Asian Stock Markets," Capital Markets Review, Malaysian Finance Association, vol. 25(1), pages 26-42.
    3. Olfa Chaouachi & Fatma Wy?me Ben Mrad Douagi, 2014. "Overreaction Effect in the Tunisian Stock Market," Journal of Asian Business Strategy, Asian Economic and Social Society, vol. 4(11), pages 134-140, November.
    4. Ramzi Boussaidi, 2017. "The winner-loser effect in the Tunisian stock market: A multidimensional risk-based explanation," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 17(3), pages 178-189, September.

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