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Does Investor Sentiment Explain The Seasonality Of Overreaction? Examples Of The Nigerian And South African Equity Markets

Rafiq Raji and Kalu Ojah ()

The African Finance Journal, 2015, vol. 17, issue 2, 25-54

Abstract: We investigate, for the first time, equity return overreaction and associated January effect in the Nigerian Stock Exchange (NSE); with both of these market anomalies also examined in the South African equity market (JSE), mainly to assess their likely persistence in the JSE. We find evidence of overreaction and seasonality in the NSE, in contrast to past studies that found the NSE to be weak-form efficient. The overreaction in the NSE is also accompanied by January and June month-of-the-year effects. For the JSE, there is now no evidence of overreaction; thus, suggesting that overreaction may have been arbitraged away over time. Although, a January effect is still recorded in the JSE, it is an “October effect” that is now found to be robust. Importantly, the NSE shows evidence of congruity of return and investor sentiment, which suggests that investor sentiment, can explain seasonality of overreaction in the Nigerian market. Overall, our results point to useful policy and trading strategy guides for these two major regional equity markets of Africa.

Keywords: Overreaction; Seasonality; Efficient market anomaly; Trading strategy; Nigeria; South Africa. (search for similar items in EconPapers)
JEL-codes: G02 G10 G20 (search for similar items in EconPapers)
Date: 2015
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