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Short Term Overreaction Effect: Evidence on the Turkish Stock Market

In: Proceedings of the Conference on Emerging Economic Issues in a Globalizing World

  • Gülin Vardar

    (Izmir University of Economics)

  • Berna Okan

    (Izmir University of Economics)

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    In this paper, we empirically examine the short term overreaction effect in the Istanbul Stock Exchange using daily stock data from January 1999 to December 2003. The study period covers the pre- and post- Turkish financial crisis period. Consistent with other prior studies on other markets, we find evidence of short term overreaction effect in the Istanbul Stock Exchange prior and post financial crisis. Our analysis highlights that stocks that display a large price increase (winners) show an evidence of overreaction in the short run, however, stocks that display a large price decline (losers) indicate no significant evidence. We also find the price reversal for winners in pre-crisis period is more pronounced than in post-crisis period. These results indicate a diminished degree of overreaction after the crisis period which may be attributable to the behaviors of traders.

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    This chapter was published in:
  • Oguz Esen & Ayla Ogus (ed.), 2008. "Proceedings of the International Conference on Emerging Economic Issues in a Globalizing World," Proceedings of the IUE-SUNY Cortland Conference in Economics, Izmir University of Economics, number 2008, October.
  • This item is provided by Izmir University of Economics in its series Papers of the Annual IUE-SUNY Cortland Conference in Economics with number 200809.
    Handle: RePEc:izm:prcdng:200809
    Contact details of provider: Fax: (90) 232 279 2626
    Web page: http://eco.ieu.edu.tr

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    1. Bowman, Robert G. & Iverson, David, 1998. "Short-run overreaction in the New Zealand stock market," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 475-491, November.
    2. Antonios Antoniou & Emilios C. Galariotis & Spyros I. Spyrou, 2005. "Contrarian Profits and the Overreaction Hypothesis: the Case of the Athens Stock Exchange," European Financial Management, European Financial Management Association, vol. 11(1), pages 71-98.
    3. 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.
    4. Aigbe Akhigbe & Thomas Gosnell & T. Harikumar, 1998. "Winners And Losers On Nyse: A Re-Examination Using Daily Closing Bid-Ask Spreads," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(1), pages 53-64, 03.
    5. Anthony J. Richards, 1997. "Winner-Loser Reversals in National Stock Market Indices; Can they Be Explained?," IMF Working Papers 97/182, International Monetary Fund.
    6. Kryzanowski, Lawrence & Zhang, Hao, 1992. "The Contrarian Investment Strategy Does Not Work in Canadian Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(03), pages 383-395, September.
    7. Alonso, Aurora & Rubio, Gonzalo, 1990. "Overreaction in the Spanish equity market," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 469-481, August.
    8. 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.
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