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Differences of Opinion and Price Reversals: Evidence from the Taiwan Stock Exchange

Author

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  • Chu-Chun Cheng

    (Department of International Trade, Takming University of Science and Technology, No. 56, Sec. 1, Huanshan Rd., Neihu, Taipei 11451, Taiwan)

  • Yen-Sheng Huang

    (Department of Business Administration, National Taiwan University of Science and Technology, Taipei, Taiwan)

Abstract

This paper examines the impact of differences of opinion (DIFOPN) on long-term price reversals using all of the common stocks listed on the Taiwan Stock Exchange over the period of 1990–2008. We choose winners and losers ranked by their cumulative abnormal returns (CARs) over the three-year formation period. The performance of the winners and losers is evaluated over the subsequent one-year holding periods. The empirical results indicate that DIFOPN are generally positively related to price reversals in the holding period for both winners and losers. When DIFOPN are measured by the financial analysts' forecasts of earnings per share and by the standard deviation of stock returns, the association between DIFOPN and price reversals is significantly different from zero. This relationship is robust when such control variables as market-to-book ratios, size, and beta are included.

Suggested Citation

  • Chu-Chun Cheng & Yen-Sheng Huang, 2015. "Differences of Opinion and Price Reversals: Evidence from the Taiwan Stock Exchange," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(03), pages 1-23.
    • Handle: RePEc:wsi:rpbfmp:v:18:y:2015:i:03:n:s0219091515500150
    DOI: 10.1142/S0219091515500150
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    Citations

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    Cited by:

    1. Jeffrey Hobbs & Hei Wai Lee & Vivek Singh, 2017. "New evidence on the effect of belief heterogeneity on stock returns," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 289-309, February.
    2. Douglas W. Blackburn & Nusret Cakici, 2020. "Tangible and intangible information in emerging markets," Review of Quantitative Finance and Accounting, Springer, vol. 54(4), pages 1509-1527, May.

    More about this item

    Keywords

    Overreaction; differences of opinion;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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