Evolution of Price Effects After One-Day of Abnormal Returns in the US Stock Market

University of Nebraska and Loughborough University Working Paper: 2020-16

32 Pages Posted: 19 Feb 2021

See all articles by Alex Plastun

Alex Plastun

Sumy State University

Xolani Sibande

University of Pretoria - Department of Economics

Rangan Gupta

University of Pretoria - Department of Economics

Mark E. Wohar

University of Nebraska at Omaha

Date Written: February 18, 2020

Abstract

This paper provides a comprehensive analysis of price effects after one-day abnormal returns and their evolution in the US stock market for the case of Dow Jones Index over the period 1890-2018. Using different statistical tests (both parametrical and non-parametrical) as well as additional technics like modified cumulative abnormal returns approach, regression analysis with dummy variables, R/S analysis and a trading simulation approach; four hypotheses were tested, which are (H1): the after one-day of abnormal returns specific price effects (momentum/ contrarian) do appear; (H2): the price effects after one-day of abnormal returns vary in time and evolve; (H3): the price effects after one-day of abnormal returns can be exploited to generate profits from trading; and (H4): the level of persistence in anomalies related data set differs from the normal data set persistence. The results suggest that price effects after one-day abnormal returns during the analyzed period tend to be rather unstable both from the position of their strength and direction (momentum or contrarian effect). Between the 1940s and the 1980s a strong momentum effect after a day of positive abnormal returns was present and it was exploitable for profit. However, after the 1980s this has since disappeared. Nowadays the after one-day of abnormal returns price effects in the US stock market are rather weak and do not generate profit opportunities. The results, therefore, are consistent with the Adaptive Market Hypothesis.

Keywords: Overreaction, Momentum Effect, Contrarian Effect, Abnormal Returns, Stock Market; Dow Jones Index

JEL Classification: G12, C63

Suggested Citation

Plastun, Alex and Sibande, Xolani and Gupta, Rangan and Wohar, Mark E., Evolution of Price Effects After One-Day of Abnormal Returns in the US Stock Market (February 18, 2020). University of Nebraska and Loughborough University Working Paper: 2020-16 , Available at SSRN: https://ssrn.com/abstract=3751545 or http://dx.doi.org/10.2139/ssrn.3751545

Alex Plastun (Contact Author)

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

Xolani Sibande

University of Pretoria - Department of Economics ( email )

South Africa

Rangan Gupta

University of Pretoria - Department of Economics ( email )

South Africa

Mark E. Wohar

University of Nebraska at Omaha ( email )

Department of Economics
6708 Pine Street MH 332S
Omaha, NE 68182
United States
402-554-3712 (Phone)
402-554-2853 (Fax)

HOME PAGE: http://cba.unomaha.edu/faculty/mwohar/WEB/homepage.html

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