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Stock Returns Following Large One-Day Declines: Evidence on Short-Term Reversals and Longer-Term Performance

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  • Cox, Don R
  • Peterson, David R

Abstract

The authors examine stock returns following large one-day price declines and find that the bid-ask bounce and the degree of market liquidity explain short-term price reversals. Further, they do not find evidence consistent with the overreaction hypothesis. The authors observe that securities with large one-day price declines perform poorly over an extended time horizon. Copyright 1994 by American Finance Association.

Suggested Citation

  • Cox, Don R & Peterson, David R, 1994. " Stock Returns Following Large One-Day Declines: Evidence on Short-Term Reversals and Longer-Term Performance," Journal of Finance, American Finance Association, vol. 49(1), pages 255-267, March.
  • Handle: RePEc:bla:jfinan:v:49:y:1994:i:1:p:255-67
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    References listed on IDEAS

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    1. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. " Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-1764, December.
    2. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    3. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    4. Banz, Rolf W & Breen, William J, 1986. " Sample-Dependent Results Using Accounting and Market Data: Some Evidence," Journal of Finance, American Finance Association, vol. 41(4), pages 779-793, September.
    5. Chopra, Navin & Lakonishok, Josef & Ritter, Jay R., 1992. "Measuring abnormal performance : Do stocks overreact?," Journal of Financial Economics, Elsevier, vol. 31(2), pages 235-268, April.
    6. Basu, S, 1977. "Investment Performance of Common Stocks in Relation to Their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis," Journal of Finance, American Finance Association, vol. 32(3), pages 663-682, June.
    7. Jaffe, Jeffrey & Keim, Donald B & Westerfield, Randolph, 1989. " Earnings Yields, Market Values, and Stock Returns," Journal of Finance, American Finance Association, vol. 44(1), pages 135-148, March.
    8. De Bondt, Werner F M & Thaler, Richard H, 1987. " Further Evidence on Investor Overreaction and Stock Market Seasonalit y," Journal of Finance, American Finance Association, vol. 42(3), pages 557-581, July.
    9. Chan, K C, 1988. "On the Contrarian Investment Strategy," The Journal of Business, University of Chicago Press, vol. 61(2), pages 147-163, April.
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