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Chances and limitations of a short‐term overreaction effect – stochastic considerations and empirical results
Author(s) -
Düvelmeyer D.,
Hofmann B.
Publication year - 2003
Publication title -
pamm
Language(s) - English
Resource type - Journals
ISSN - 1617-7061
DOI - 10.1002/pamm.200310212
Subject(s) - closing (real estate) , term (time) , economics , econometrics , monotone polygon , index (typography) , phenomenon , financial economics , financial market , monetary economics , mathematics , finance , computer science , physics , geometry , quantum mechanics , world wide web
Abstract As a specific case of the overreaction phenomenon in financial markets we observe reversals of index and future prices in periods following a suggested “qualified movement” of prices. Such a situation is indicated on the one hand by a monotone growth or decline of closing prices during three trading days. On the other hand, there are formulated stochastic conditions expressing a sufficiently improbable market situation, which is frequently compensated by a significant short‐term price reversal. Reversal measures are discussed and a case study completes the paper.