The Death of the Overreaction Anomaly? A Multifactor Explanation of Contrarian Returns

This file is part of IDEAS, which uses RePEc data

The Death of the Overreaction Anomaly? A Multifactor Explanation of Contrarian Returns

Author Info

Adam Clements
Michael E. Drew
Evan M. Reedman

Additional information is available for the following registered author(s):

Abstract

Are the returns accruing to De Bondt and Thaler’s (1985) (DT) much celebrated overreaction anomaly pervasive? Using the CRSP data set used by for the period 1926 through 1982, and, for the first time, an additional two decades of data (1983 through 2003), we provide preliminary support for the original work of DT, reporting that the overreaction anomaly has not only persisted over the past twenty years but has increased, on a risk-unadjusted basis. However, using the three factor model of Fama and French (1993) (FF), we find no statistically significant alpha can be garnered via the overreaction anomaly, with contrarian returns driven by the factors of size and value, not the behavioral biases of investors. It is our conjecture that the anomaly is not robust under the FF framework, with ‘contrarian’ investors following such a scheme simply compensated for the inherent portfolio risk held.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

Publisher Info
Paper provided by School of Economics and Finance, Queensland University of Technology in its series School of Economics and Finance Discussion Papers and Working Papers Series with number 219.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 12
Date of creation: 01 Jun 2007
Date of revision:
Handle: RePEc:qut:dpaper:219

Note: # Corresponding author: Corresponding author: Tel: 07 3138 1481; Fax 07 3138 1500; Email: m.drew@qut.edu.au; Mail: School of Economics and Finance, QUT, GPO Box 2434, Brisbane, Queensland, Australia, 4001. *Queensland University of Technology (Clements, Drew & Reedman) and ^Monash University (Veeraraghavan). Reedman acknowledges support provided by the School of Economics and Finance, QUT and the Brian Gray Scholarship (jointly funded by the Australian Prudential Regulation Authority and the Reserve Bank of Australia). The authors thank participants at the FIRN Doctoral Tutorial 2005, the 18th Australasian Finance & Banking Conference, the 5th Global Conference on Business & Economics and the 2006 Business & Economics Society International Conference for helpful comments. All errors remain the sole responsibility of the authors.
Contact details of provider:
Postal: GPO Box 2434, BRISBANE QLD 4001
Email:
Web page: http://www.bus.qut.edu.au/faculty/schools/economics/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Dr Vlad Pavlov).

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-06-11 (All new papers)
NEP-RMG-2007-06-11 (Risk Management)

Statistics

Access and download statistics

Did you know? You too can volunteer with RePEc.

This page was last updated on 2008-9-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.