Short-term market overreaction on the Frankfurt stock exchange

Sebastian Lobe and Johannes Rieks

The Quarterly Review of Economics and Finance, 2011, vol. 51, issue 2, 113-123

Abstract: This paper offers out-of-sample evidence of subsequent short-term abnormal returns for stocks experiencing a price change of 10% or more in either direction on the German stock market between 1988 and 2007. First, we find significant evidence of overreaction which is not exclusively concentrated in small-caps. Second, some well documented anomalies and stock characteristics seem to exhibit explanatory power. However, when controlling for size only a reversal effect can pervasively explain the abnormal 1-day stock market reaction to price shocks. Third, due to transaction costs and unpredictable market sentiment these anomalies can hardly be exploited. After all, our robust findings suggest no violation of the efficient market hypothesis.

Keywords: Overreaction; Price; shocks; Anomalies (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:51:y:2011:i:2:p:113-123

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