Short-term market overreaction on the Frankfurt stock exchange
This paper offers out-of-sample evidence of subsequent short-term abnormal returns for stocks experiencing a price change of 10% or more in either direction on the German stock market between 1988 and 2007. First, we find significant evidence of overreaction which is not exclusively concentrated in small-caps. Second, some well documented anomalies and stock characteristics seem to exhibit explanatory power. However, when controlling for size only a reversal effect can pervasively explain the abnormal 1-day stock market reaction to price shocks. Third, due to transaction costs and unpredictable market sentiment these anomalies can hardly be exploited. After all, our robust findings suggest no violation of the efficient market hypothesis.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fama, Eugene F & French, Kenneth R, 1992. " The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
- Pritamani, Mahesh & Singal, Vijay, 2001. "Return predictability following large price changes and information releases," Journal of Banking & Finance, Elsevier, vol. 25(4), pages 631-656, April.
- Ising, Jan & Schiereck, Dirk & Simpson, Marc W. & Thomas, Thomas W., 2006. "Stock returns following large 1-month declines and jumps: Evidence of overoptimism in the German market," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(4), pages 598-619, September.
- Brown, Keith C. & Harlow, W. V. & Tinic, Seha M., 1988. "Risk aversion, uncertain information, and market efficiency," Journal of Financial Economics, Elsevier, vol. 22(2), pages 355-385, December.
- 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.
- Mun, Johnathan C. & Vasconcellos, Geraldo M. & Kish, Richard, 1999. "Tests of the Contrarian Investment Strategy Evidence from the French and German stock markets," International Review of Financial Analysis, Elsevier, vol. 8(3), pages 215-234, March.
- Atkins, Allen B. & Dyl, Edward A., 1990. "Price Reversals, Bid-Ask Spreads, and Market Efficiency," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(04), pages 535-547, December.
- Bremer, Marc & Hiraki, Takato & Sweeney, Richard J., 1997. "Predictable Patterns after Large Stock Price Changes on the Tokyo Stock Exchange," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 345-365, September.
- Baytas, Ahmet & Cakici, Nusret, 1999. "Do markets overreact: International evidence," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1121-1144, July.
- Hong, Harrison & Kacperczyk, Marcin, 2009. "The price of sin: The effects of social norms on markets," Journal of Financial Economics, Elsevier, vol. 93(1), pages 15-36, July.
- Stephen J. Larson & Jeff Madura, 2003. "What Drives Stock Price Behavior Following Extreme One-Day Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(1), pages 113-127.
- Zarowin, Paul, 1990. "Size, Seasonality, and Stock Market Overreaction," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(01), pages 113-125, March.
- Schiereck, D. & De Bondt, W. & Weber, M., 1999. "Contrarian and Momentum Strategies in Germany," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 35306, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
- Banz, Rolf W., 1981. "The relationship between return and market value of common stocks," Journal of Financial Economics, Elsevier, vol. 9(1), pages 3-18, March.
- Alonso, Aurora & Rubio, Gonzalo, 1990. "Overreaction in the Spanish equity market," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 469-481, August.
- Jegadeesh, Narasimhan & Titman, Sheridan, 1993. " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
- da Costa, Newton Jr., 1994. "Overreaction in the Brazilian stock market," Journal of Banking & Finance, Elsevier, vol. 18(4), pages 633-642, September.