Testing the Overreaction Hypothesis in the Mexican Stock Market
Contaduría y Administración 65 (1) 2020, 1-23
23 Pages Posted: 14 Jun 2021
Date Written: January 17, 2019
The objective of this work is to test the overreaction hypothesis in the Mexican Stock Market for the period of 2002-2015, using monthly data and applying the Cumulative Average Residuals (CAR) methodology via the CAPM model and the three-factor model proposed by Fama and French. The CAR model is applied to test how winner and loser portfolios perform during the period under analysis. Overall, the evidence shows that average CAR for the loser portfolio is 0.706%, whereas CAR for the winner portfolio is 0.364%, and that are statistically different; nevertheless, both portfolios are co-integrated. This research contributes to the financial literature identifying overreaction in the Mexican Stock Market during the period examined.
Keywords: Overreaction; Cumulative average residuals; Mexican stock market
JEL Classification: G15, G41
Suggested Citation: Suggested Citation