The Time-Varying Nature of the Overreaction Effect: Evidence from the UK

Authors

  • Panagiotis Andrikopoulos De Montfort University
  • Arief Daynes University of Portsmouth, United Kingdom
  • Paraskevas Pagas University of Portsmouth, United Kingdom

Keywords:

Overreaction, Stock market efficiency, Small-size effect, Time-variation,, Behavioral finance

Abstract

Previous studies on the overreaction effect in the UK show that prior losers consistently outperform prior winners in the period 1975 to 1990. This paper extends current knowledge by assessing the above phenomenon in the UK market for the period 1987 to 2007. In contrast to earlier research, we produce evidence of a weak presence of the overreaction effect for the latest test period. Further, we show that, after adjusting for size, the overreaction effect almost disappears and any additional excess post-formation return to prior-losers is attributable to market cycles. This study implies that the presence of the overreaction effect in the UK stock market is time-varying and difficult to exploit in practice.

 

Additional Files

Published

05-09-2011

How to Cite

Andrikopoulos, P., Daynes, A., & Pagas, P. (2011). The Time-Varying Nature of the Overreaction Effect: Evidence from the UK. International Journal of Banking and Finance, 8(3), 1–36. Retrieved from https://e-journal.uum.edu.my/index.php/ijbf/article/view/8427