IDEAS home Printed from https://ideas.repec.org/a/mth/ber888/v6y2016i2p412-423.html
   My bibliography  Save this article

Overreaction Hypothesis and Reaction of Borsa Istanbul to Dow-Jones

Author

Listed:
  • Metin Tetik
  • Ercan ?zen

Abstract

The aim of this study is to investigate whether or not there are any over-reactions to the positive and negative events of the Borsa Istanbul 100 index (BIST-100) in relation to the Dow Jones Industrial index (DJIA). The daily stock indexes between January 2010 and June 2016 are used in this research. The research finding showed that BIST-100 reacts in the same way as DJIA up to 3.31% and the reaction decreases and was lost between 30 and 60 days against the positive changes. In case of adverse events the BIST 100 shows abnormal decline in protecting the efficient market hypothesis is valid for 30 days after the event, however, the decline is reversed until the 60'th days when all losses are compensated. This terminates the validity of the efficient market hypothesis. This study shows that the BIST 100 index does not comply with the efficient market hypothesis and demonstrate the validity of the overreaction hypothesis. Study results include stock investments, whose findings will have an impact on portfolio management decisions of investors.

Suggested Citation

  • Metin Tetik & Ercan ?zen, 2016. "Overreaction Hypothesis and Reaction of Borsa Istanbul to Dow-Jones," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 412-423, December.
    • Handle: RePEc:mth:ber888:v:6:y:2016:i:2:p:412-423
    as

    Download full text from publisher

    File URL: http://www.macrothink.org/journal/index.php/ber/article/view/10353/8437
    Download Restriction: no
    File URL: http://www.macrothink.org/journal/index.php/ber/article/view/10353
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    3. Gishan Dissanaike, 1997. "Do Stock Market Investors Overreact?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 27-50, January.
    4. Lasfer, M. Ameziane & Melnik, Arie & Thomas, Dylan C., 2003. "Short-term reaction of stock markets in stressful circumstances," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 1959-1977, October.
    5. Gishan Dissanaike, 1997. "Do Stock Market Investors Overreact?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(1), pages 27-50.
    6. Hatice Dogukanli & Gamze Vural & Bahadir Ergun, 2012. "Using Various Portfolio Formation and Test Periods: An Examination of Overreaction in ISE," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 13(49), pages 1-18.
    7. Soner AKKOC & Nasif OZKAN, 2013. "An Empirical Investigation of the Uncertain Information Hypothesis: Evidence From Borsa Istanbul," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 7(2), pages 101-119.
    8. Bremer, Marc & Sweeney, Richard J, 1991. "The Reversal of Large Stock-Price Decreases," Journal of Finance, American Finance Association, vol. 46(2), pages 747-754, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dumitriu, Ramona & Stefanescu, Razvan & Nistor, Costel, 2012. "Reactions of the capital markets to the shocks before and during the global crisis," MPRA Paper 41540, University Library of Munich, Germany, revised 10 Jan 2012.
    2. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, September.
    3. Alves, Paulo & Carvalho, Luís, 2020. "Recent evidence on international stock market’s overreaction," The Journal of Economic Asymmetries, Elsevier, vol. 22(C).
    4. Vinicius Ratton Brandi, 2020. "Short-Term Predictability of Stock Market Indexes following Large Drawdowns and Drawups," Working Papers Series 529, Central Bank of Brazil, Research Department.
    5. Hisham Farag, 2014. "Investor overreaction and unobservable portfolios: evidence from an emerging market," Applied Financial Economics, Taylor & Francis Journals, vol. 24(20), pages 1313-1322, October.
    6. Lasfer, M. Ameziane & Melnik, Arie & Thomas, Dylan C., 2003. "Short-term reaction of stock markets in stressful circumstances," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 1959-1977, October.
    7. Plastun, Alex & Sibande, Xolani & Gupta, Rangan & Wohar, Mark E., 2021. "Evolution of price effects after one-day abnormal returns in the US stock market," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    8. Jalal Shah & Attaullah Shah, 2018. "Contrarian and Momentum Investment Strategies in Pakistan Stock Exchange," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(3), pages 253-282.
    9. Jeff Madura & Martina K. Bers, 2002. "The performance persistence of foreign closed‐end funds," Review of Financial Economics, John Wiley & Sons, vol. 11(4), pages 263-285.
    10. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 27, July-Dece.
    11. Guglielmo Maria Caporale & Alex Plastun, 2020. "Momentum effects in the cryptocurrency market after one-day abnormal returns," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(3), pages 251-266, September.
    12. Piccoli, Pedro & Chaudhury, Mo & Souza, Alceu, 2017. "How do stocks react to extreme market events? Evidence from Brazil," Research in International Business and Finance, Elsevier, vol. 42(C), pages 275-284.
    13. Borgards, Oliver & Czudaj, Robert L., 2020. "The prevalence of price overreactions in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 65(C).
    14. Antonios Antoniou & Emilios C. Galariotis & Spyros I. Spyrou, 2006. "Short‐term Contrarian Strategies in the London Stock Exchange: Are They Profitable? Which Factors Affect Them?," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(5‐6), pages 839-867, June.
    15. Vinay Patel, 2015. "Price Discovery in US and Australian Stock and Options Markets," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 6-2015.
    16. Hon, Mark T. & Tonks, Ian, 2003. "Momentum in the UK stock market," Journal of Multinational Financial Management, Elsevier, vol. 13(1), pages 43-70, February.
    17. Dimitris Kenourgios & Nikolaos Pavlidis, 2005. "Individual Analysts’ Earnings Forecasts: Evidence for Overreaction in the UK Stock Market," Finance 0512011, University Library of Munich, Germany.
    18. Galariotis, Emilios C. & Holmes, Phil & Ma, Xiaodong S., 2007. "Contrarian and momentum profitability revisited: Evidence from the London Stock Exchange 1964-2005," Journal of Multinational Financial Management, Elsevier, vol. 17(5), pages 432-447, December.
    19. Stuart Locke & Kartick Gupta, 2009. "Applicability of Contrarian Strategy in the Bombay Stock Exchange," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 8(2), pages 165-189, May.
    20. Amini, Shima & Gebka, Bartosz & Hudson, Robert & Keasey, Kevin, 2013. "A review of the international literature on the short term predictability of stock prices conditional on large prior price changes: Microstructure, behavioral and risk related explanations," International Review of Financial Analysis, Elsevier, vol. 26(C), pages 1-17.

    More about this item

    Keywords

    Overreaction Hypothesis; Efficient Markets Hypothesis; BIST; DOW;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mth:ber888:v:6:y:2016:i:2:p:412-423. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Technical Support Office (email available below). General contact details of provider: http://www.macrothink.org/journal/index.php/ber .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.