Do U.S. Stock Market Indexes Over- Or Under-React?

Abstract:     
Our objective is to investigate the short-term over- or underreaction of six U.S. stock market indexes. We find evidence of a one-day underreaction for winners (days on which an index experiences abnormally high returns) and losers (days on which an index experiences abnormally poor performance). We also find strong evidence of a sixty-day underreaction for winners. For losers, abnormal returns turn from negative to positive as the period is extended, resulting in significant reversals over the sixty-day period. Results are generally consistent for each of the six indexes. Overall, these results provide strong support for the Uncertain Information Hypothesis.

JEL Classifications: G14

Accepted Paper Series