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Short-term under/overreaction, anticipation or uncertainty avoidance? Evidence from India

  • Maher, Daniela
  • Parikh, Anokhi
Registered author(s):

    We examine the short-term price behaviour of three, size-conditioned Indian stock market indices, in response to informational shocks. A standard mean-adjusted returns model as well as the GJR-GARCH specification point towards underreaction to negative events in the medium and small capitalization indices. Also, the pre-event coefficients are generally negative and statistically significant, regardless of the sign of the shock, thus ruling out information leaks. We uncover a stable abnormal volatility pattern which increases monotonically a few days before the shock before suddenly decreasing in magnitude on the event day and beyond. We suggest uncertainty avoidance as a potential explanation of these features. The results are fairly robust across alternative event selection procedures, time, and size-conditioned shocks.

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    Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

    Volume (Year): 21 (2011)
    Issue (Month): 4 (October)
    Pages: 560-584

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    Handle: RePEc:eee:intfin:v:21:y:2011:i:4:p:560-584
    Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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