INVESTOR OVERREACTION DURING MARKET DECLINES: EVIDENCE FROM THE 1997 ASIAN FINANCIAL CRISIS

David Michayluk () and Karyn L. Neuhauser

Journal of Financial Research, 2006, vol. 29, issue 2, 217-234

Abstract: Unlike the 1987 stock market crash, the 1997 stock market decline was clearly preceded by new information that affected fundamental values of U.S. firms. We provide a detailed description of U.S. stock returns surrounding the Asian financial crisis. Consistent with the overreaction hypothesis, we find strong evidence of a magnitude effect in short‐term return reversals. Additionally, we find evidence of short‐term return predictability in the aftermath. Our results are robust to controls for size, price, risk, and bid‐ask bounce effects. Overall, the results are indicative of investor overreaction in times of market crisis.

Date: 2006
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