Open AccessOverreaction in Trading
Author(s) -
Justin Morscheck
Publication year - 2019
Publication title -
international journal of finance and banking studies
Language(s) - English
Resource type - Journals
ISSN - 2147-4486
DOI - 10.20525/ijfbs.v7i4.196
Subject(s) - receipt , asset (computer security) , value (mathematics) , economics , financial economics , monetary economics , price discovery , financial crisis , capital asset pricing model , business , macroeconomics , futures contract , computer security , accounting , machine learning , computer science
Using intraday trading data during the 2008 financial crisis, from the Standard and Poor’s Depository Receipt (SPDR) market, we test for evidence of the informational advantage of traders. In addition, we examine the effect of pricing error on trade price. If traders are rational, and have accurate information, they will only purchase an asset at a premium (discount) if they have reason to believe that the fundamental value of that asset will increase (decrease). Our results show that the trading price of the SPDR does not significantly predict the movement of underlying asset values. This finding is consistent with traders overreacting to disparities between price and underlying value during the financial crisis.