Do markets overreact: International evidence

Ahmet Baytas, Nusret Cakici

Research output: Contribution to journalArticle

57 Scopus citations

Abstract

In this paper, using the Conrad and Kaul's methodology we test for the overreaction hypothesis - which maintains that stock prices systematically overshoot and therefore their reversal can be predicted from past performance - in seven industrialized countries. Consistent with the findings of Conrad and Kaul, we see no evidence of overreaction in the US. However, returns to long-term contrarian strategies in other countries seem to be generally significant. Moreover, we find that in the majority of the countries, while returns to arbitrage portfolios based on price are higher than those based on size, the latter generally outperform the winner-loser arbitrage portfolios.

Original languageEnglish
Pages (from-to)1121-1144
Number of pages24
JournalJournal of Banking and Finance
Volume23
Issue number7
DOIs
Publication statusPublished - Jul 1999

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Keywords

  • Foreign stock markets
  • G15
  • International finance
  • International financial markets
  • Market overreaction

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