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Stock Market Overreaction and Trading Volume: Evidence from Malaysia

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Author Info

  • Ruhani Ali

    ()
    (Graduate School of Business, Universiti Sains Malaysia, 11800 USM Pulau Pinang)

  • Zamri Ahmad

    (School of Management, Universiti Sains Malaysia, 11800 USM Pulau Pinang)

  • Shangkari V. Anusakumar

    (School of Management, Universiti Sains Malaysia, 11800 USM Pulau Pinang)

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    Abstract

    We investigate the stock market overreaction in Bursa Malaysia from January 2000 to October 2010 using weekly data. We find that winner portfolios tend to have negative returns whereas loser portfolios have positive returns for various holding periods from 1 to 52 weeks. Loser stocks experience more persistent and stronger return reversals than winner stocks. The evidence implies that a lower level of overreaction exists for winner stocks. Overall, a loser-winner portfolio yields highly significant returns. Comparing the overreaction of low-, medium- and high-volume stocks, we find that low volume stocks experience more consistent and larger return reversals. Therefore, trading volume is inversely related to overreaction. We also document more persistent overreaction for loser than winner stocks for all volume categories. The results suggest that investor may be able to obtain significant profits by implementing a short term contrarian strategy focused on low volume stocks.

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    File URL: http://web.usm.my/journal/aamjaf/vol7-2-2011/7-2-4.pdf
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    Bibliographic Info

    Article provided by Penerbit Universiti Sains Malaysia in its journal Asian Academy of Management Journal of Accounting and Finance.

    Volume (Year): 7 (2011)
    Issue (Month): 2 ()
    Pages: 103-119

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    Handle: RePEc:usm:journl:aamjaf00702_103-119

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    Web page: http://web.usm.my/aamj/
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    Related research

    Keywords: overreaction; trading volume; return reversal; contrarian; return predictability;

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