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Do the prices of stock index futures in Asia overreact to U.S. market returns?

  • Fung, Alexander Kwok-Wah
  • Lam, Kin
  • Lam, Ka-Ming
Registered author(s):

    We extend the overreaction study to interaction of international markets and find that intraday price reversals exist in Asian index futures markets following extreme movement in U.S. market. Profitable opportunities exist after considering transaction cost. We show that the reversal cannot be explained by rational arguments such as risk, liquidity and bid-ask spread. We further observe that a magnitude effect exists. Overreaction is more prominent in the latter period than in the initial period. After calm-down periods, overreaction is greatly reduced. These observations support the explanation that the source of price reversals lies in behavioral biases.

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    File URL: http://www.sciencedirect.com/science/article/B6VFG-4Y34K4N-1/2/9ae145cf2c24535d88e8ea422c54d6bd
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    Article provided by Elsevier in its journal Journal of Empirical Finance.

    Volume (Year): 17 (2010)
    Issue (Month): 3 (June)
    Pages: 428-440

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    Handle: RePEc:eee:empfin:v:17:y:2010:i:3:p:428-440
    Contact details of provider: Web page: http://www.elsevier.com/locate/jempfin

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    9. Grant, James L. & Wolf, Avner & Yu, Susana, 2005. "Intraday price reversals in the US stock index futures market: A 15-year study," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1311-1327, May.
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