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A Note on the Behavior of Security Returns: A Test of Stock Market Overreaction and Efficiency


  • Davidson, Wallace N, III
  • Dutia, Dipa


Researchers have debated stock market efficiency for years and have found several apparent anomalies, among them the overreaction investment strategy. In a sample of virtually all AMEX and NYSE stocks over twenty-one years, it is demonstrated that abnormal returns earned in one year are positively related to the abnormal returns earned in the next year. The evidence is contrary to the overreaction investment philosophy.

Suggested Citation

  • Davidson, Wallace N, III & Dutia, Dipa, 1989. "A Note on the Behavior of Security Returns: A Test of Stock Market Overreaction and Efficiency," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 245-252, Fall.
  • Handle: RePEc:bla:jfnres:v:12:y:1989:i:3:p:245-52

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    Cited by:

    1. Peter Fortune, 1998. "Mutual funds, part II: fund flows and security returns," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
    2. Mun, Johnathan C. & Vasconcellos, Geraldo M. & Kish, Richard, 2000. "The Contrarian/Overreaction Hypothesis: An analysis of the US and Canadian stock markets," Global Finance Journal, Elsevier, vol. 11(1-2), pages 53-72.
    3. Yochanan Shachmurove, 2001. "Tests of Financial Markets Efficiency for Thirteen Small European Countries," Penn CARESS Working Papers eda175263851a1d10f52acc29, Penn Economics Department.
    4. Watson, John & Wickramanayake, J., 2012. "The relationship between aggregate managed fund flows and share market returns in Australia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 451-472.
    5. Baur, Robert Frederick, 1992. "Overreaction in futures markets," ISU General Staff Papers 1992010108000010973, Iowa State University, Department of Economics.
    6. Yixi Ning & Xiankui Hu & Xavier Garza-Gomez, 2015. "An empirical analysis of the impact of large changes in institutional ownership on CEO compensation risk," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 39(1), pages 23-47, January.

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