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Are Emerging Market Investors Overly Pessimistic in Extreme Risk-off Periods?

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  • Jan Viebig

Abstract

Motivated by Campbell and Shiller [2001], we ask if future returns and loss probabilities are predictable when markets trade at extremely low, depressed levels. In this paper we present empirical evidence that a predictable “undershooting phenomenon” exists in emerging markets. Depressed valuation ratios are a statistically significant predictor at the 99% level of confidence for future returns in most emerging markets. Overly anxious emerging market investors seem to overreact in periods of extreme stress and fear in financial markets.

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  • Jan Viebig, 2015. "Are Emerging Market Investors Overly Pessimistic in Extreme Risk-off Periods?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 16(2), pages 163-172, April.
    • Handle: RePEc:taf:hbhfxx:v:16:y:2015:i:2:p:163-172
    DOI: 10.1080/15427560.2015.1034861
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