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PICKING WINNERS? A SURVEY OF THE MEAN REVERSION AND OVERREACTION OF STOCK PRICES LITERATURE
Author(s) -
Forbes William P.
Publication year - 1996
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.1996.tb00007.x
Subject(s) - contrarian , mean reversion , economics , autocorrelation , financial economics , stock (firearms) , earnings , econometrics , efficient market hypothesis , stock market , accounting , mechanical engineering , paleontology , statistics , mathematics , horse , engineering , biology
. This paper surveys, and suggests a possible synthesis of, two growing literatures concerning stock market anomalies. The first concentrates on identifying contrarian trading rules, capable of generating profits, when securities are segregated on the basis of past earnings, or share price performance. The other simply examines the time‐series properties of security prices to find evidence of low‐frequency negative autocorrelation, or ‘meanreversion’. We seek to articulate the points of interdependence between the two strands of research and the problems of joint hypothesis testing implied by the close relation between ‘Overreaction’and ‘mean‐reversion’tests.