Long-Term Price Overreactions: Are Markets Inefficient?

Guglielmo Maria Caporale, Luis Gil-Alana and Alex Plastun

No 1444, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper examines long-term price overreactions in various financial markets (commodities, US stock market and FOREX). First, t-tests are carried out for overreactions as a statistical phenomenon. Second, a trading robot approach is applied to test the profitability of two alternative strategies, one based on the classical overreaction anomaly, the other on a so-called “inertia anomaly”. Both weekly and monthly data are used. Evidence of anomalies is found predominantly in the case of weekly data. In the majority of cases strategies based on overreaction anomalies are not profitable, and therefore the latter cannot be seen as inconsistent with the EMH.

Keywords: Efficient Market Hypothesis; anomaly; overreaction hypothesis; abnormal returns; contrarian strategy; trading strategy; trading robot; t-test (search for similar items in EconPapers)
JEL-codes: C63 G12 G17 (search for similar items in EconPapers)
Pages: 23 p.
Date: 2015
New Economics Papers: this item is included in nep-mst
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Related works:
Journal Article: Long-term price overreactions: are markets inefficient? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1444

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