Investors’ Reaction to Sharp Price Changes in GCC Markets

27 Pages Posted: 3 Oct 2011

See all articles by Rasoul Rezvanian

Rasoul Rezvanian

Northeastern Illinois University

Rima Turk-Ariss

International Monetary Fund; Economic Research Forum

Seyed M. Mehdian

University of Michigan at Flint

Date Written: September 15, 2011

Abstract

We examine investors’ reactions to sharp price changes in seven equity markets of Gulf Cooperation Council (GCC) countries to uncover patters of price formation. We compare the price behavior and volatility of these markets within a 15-day window following the arrival of new information. We find that the arrival of unexpected news that results in sharp price changes significantly increases market volatility in all GCC markets and that the subsequent price adjustments mostly exhibit upward corrective patterns. Contrary to the findings from some markets in other developed and developing countries, these results are consistent with the prediction of Uncertain Information Hypothesis. In reaction to both good and bad news, investors initially set equity prices below their fundamental values and subsequent price trends register an upward adjustment. These findings suggest that investors in GCC equity markets react rationally to the arrival of unexpected news and that no contrarian investment strategy can be utilized to generate abnormal return.

Keywords: Over and under reaction,k Equity market efficiency, Gulf Cooperation Council

JEL Classification: G14, G15

Suggested Citation

Rezvanian, Rasoul and Turk-Ariss, Rima and Mehdian, Seyed M., Investors’ Reaction to Sharp Price Changes in GCC Markets (September 15, 2011). Midwest Finance Association 2012 Annual Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1930221 or http://dx.doi.org/10.2139/ssrn.1930221

Rasoul Rezvanian

Northeastern Illinois University ( email )

5500 N. St. Louis Ave
Chicago, IL 60625
United States

Rima Turk-Ariss

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Economic Research Forum ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

Seyed M. Mehdian (Contact Author)

University of Michigan at Flint ( email )

Flint, MI 48502
United States

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