Overreaction and underreaction on the BUCHAREST STOCK EXCHANGE
Efficient Market Hypothesis states that financial markets react instantaneous and unbiased to new information. However, in the last decades empirical researches revealed some anomalies in investors reactions to the events that caused shocks on the financial markets. There are two main hypotheses to describe such behaviors. The first one - Overreaction Hypothesis stipulates that investors overreact on the day when a shock occurs and they correct on the next days by opposite actions. The second one - Underreaction Hypothesis considers that investors underreact on the day of a shock and they apply corrections on the next days by opposite actions. These behaviors are influenced by the nature of events that cause shocks and by some characteristics of the financial markets. In this paper we explore the short-term reactions that followed positive and negative shocks from the Romanian capital market, using daily values of the main indexes from the Bucharest Stock Exchange for a period of time between January 2005 and March 2011. Depending on the horizons taken into consideration and on the nature of the shocks we find evidences for the Efficient Market Hypothesis, Overreaction Hypothesis and the Underreaction Hypothesis. We also find that actual global crisis caused significant changes in the investors’ reactions to the shocks.
|Date of creation:||12 Apr 2012|
|Date of revision:||25 Sep 2012|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
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., 1998.
"Market efficiency, long-term returns, and behavioral finance,"
Journal of Financial Economics,
Elsevier, vol. 49(3), pages 283-306, September.
- Eugene F Fama, "undated". "Market Efficiency, Long-Term Returns, and Behavioral Finance," CRSP working papers 448, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Eugene F. Fama, "undated". "Market Efficiency, Long-term Returns, and Behavioral Finance," CRSP working papers 340, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
- 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.
- Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
- Spyros Spyrou & Konstantinos Kassimatis & Emilios Galariotis, 2007. "Short-term overreaction, underreaction and efficient reaction: evidence from the London Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 17(3), pages 221-235.
- Spyros I. Spyrou & Konstantinos Kassimatis & Emilios C. Galariotis, 2007. "Short-term overreaction, underreaction and efficient reaction: evidence from the London Stock Exchange," Post-Print hal-01096009, HAL.
- Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-1617, 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.
- Skala, Dorota, 2008. "Overconfidence in Psychology and Finance – an Interdisciplinary Literature Review," MPRA Paper 26386, University Library of Munich, Germany.
- 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.
- Cochrane, John H., 2005. "Financial Markets and the Real Economy," Foundations and Trends(R) in Finance, now publishers, vol. 1(1), pages 1-101, July.
- John Cochrane, 2005. "Financial Markets and the Real Economy," NBER Working Papers 11193, National Bureau of Economic Research, Inc.
- 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.
- Chan, K C, 1988. "On the Contrarian Investment Strategy," The Journal of Business, University of Chicago Press, vol. 61(2), pages 147-163, April. Full references (including those not matched with items on IDEAS)