Short-Term Market Overreaction on the Frankfurt Stock Exchange
University of Regensburg; Center of Finance
Nagler & Company
December 14, 2010
Quarterly Review of Economics and Finance, Vol. 51, Issue 2, pp. 113-123, May 2011
This paper offers out-of-sample evidence of subsequent short-term abnormal returns for stocks experiencing a price change of ten percent or more in either direction on the German stock market between 1988 and 2007. First, we find significant evidence of overreaction which is not exclusively concentrated in small-caps. Second, some well documented anomalies and stock characteristics seem to exhibit explanatory power. However, when controlling for size only a reversal effect can pervasively explain the abnormal 1-day stock market reaction to price shocks. Third, due to transaction costs and unpredictable market sentiment these anomalies can hardly be exploited. After all, our robust findings suggest no violation of the efficient market hypothesis.
Number of Pages in PDF File: 34
Keywords: Overreaction, price shocks, anomalies
JEL Classification: G14, G01, G15Accepted Paper Series
Date posted: February 5, 2008 ; Last revised: October 13, 2011
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