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OPENING RETURNS, NOISE, AND OVERREACTION
Author(s) -
ChelleySteeley Patricia
Publication year - 2001
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2001.tb00828.x
Subject(s) - closing (real estate) , volatility (finance) , economics , equity (law) , econometrics , kalman filter , noise (video) , monetary economics , financial economics , computer science , mathematics , statistics , finance , artificial intelligence , political science , law , image (mathematics)
In this article a partial‐adjustment model, which shows how equity prices fail to adjust instantaneously to new information, is estimated using a Kalman filter. For the components of the Dow Jones Industrial 30 index I aim to identify whether overreaction or noise is the cause of serial correlation and high volatility associated with opening returns. I find that the tendency for overreaction in opening prices is much stronger than for closing prices; therefore, overreaction rather than noise may account for differences in the return behavior of opening and closing returns. JEL classification: G15
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