Evolution of price effects after one-day abnormal returns in the US stock market

Alex Plastun, Xolani Sibande (), Rangan Gupta and Mark Wohar ()

The North American Journal of Economics and Finance, 2021, vol. 57, issue C

Abstract: This paper provides a comprehensive analysis of price effects after one-day abnormal returns and their evolution in the US stock market, using Dow Jones Index over the period 1890–2018. We utilise several statistical tests and econometric methods (the modified cumulative abnormal return approach, regression analysis with dummy variables, R/S analysis (Hurst, 1951), and the trading simulation approach). The results suggest that a strong momentum effect between 1940 and 1980 after a day of positive abnormal returns was present in the US stock market, and it was exploitable for profit. However, after the 1980s this has since disappeared. Overall, price effects after one-day abnormal returns during the analysed period tend to be unstable in terms of their strength and direction (momentum or contrarian effect). Nowadays, the evidence for the price effects after one-day abnormal returns in the US stock market is weak. Our results, therefore, are consistent with the Adaptive Market Hypothesis (Lo, 2004).

Keywords: Overreaction; Momentum effect; Contrarian effect; Abnormal returns; Stock market; Dow Jones Industrial Average Index (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: Evolution of Price Effects After One-Day of Abnormal Returns in the US Stock Market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:57:y:2021:i:c:s1062940821000383

DOI: 10.1016/j.najef.2021.101405

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