Assessing the Time-Varying Nature of the Over-Reaction Effect in UK

37 Pages Posted: 15 Apr 2009 Last revised: 19 Apr 2009

See all articles by Panagiotis Andrikopoulos

Panagiotis Andrikopoulos

Centre for Financial and Corporate Integrity (CFCI), Coventry University

Arief Daynes

University of Portsmouth - Business School

Paraskevas Pagas

University of Portsmouth

Date Written: January 12, 2009

Abstract

Previous studies on the overreaction effect in UK show that prior losers consistently outperform prior winners in the period 1975 to 1990. This paper extends current knowledge by assessing the presence of the effect in the UK market for the period of 1987 to 2007. In contrast to earlier research, we produce evidence of a weak presence of the overreaction effect in the UK for the last decade. Further examination reveals that after adjusting for size, the effect almost disappears, while any considerable excess post-formation return to prior-losers is related to alternative market cycles and especially the periods 1987-1990 and the post-2002 era. These studies together imply that the presence of the overreaction effect in the UK stock market is time-varying and difficult to exploit in practice.

Keywords: Overreaction, stock market efficiency, small-size effect, time-variation

JEL Classification: G14, G32

Suggested Citation

Andrikopoulos, Panagiotis and Daynes, Arief and Pagas, Paraskevas, Assessing the Time-Varying Nature of the Over-Reaction Effect in UK (January 12, 2009). Available at SSRN: https://ssrn.com/abstract=1372251 or http://dx.doi.org/10.2139/ssrn.1372251

Panagiotis Andrikopoulos (Contact Author)

Centre for Financial and Corporate Integrity (CFCI), Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom
+44(0)247 765 7920 (Phone)

Arief Daynes

University of Portsmouth - Business School ( email )

Portsmouth, PO1 3DE
United Kingdom
+44 23 92844182 (Phone)
+44 23 92844037 (Fax)

HOME PAGE: http://www.port.ac.uk/departments/academic/ams/staff/title,1246,en.html

Paraskevas Pagas

University of Portsmouth ( email )

Department of Accounting and Finance
Portsmouth Business School
Portsmouth, Hants PO1 3DE
United Kingdom
+44(0)23 9284 4721 (Phone)
+44(0)23 9284 4037 (Fax)

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