Open AccessThe Time-Varying Nature of the Overreaction Effect: Evidence from the UK
Author(s) -
Panagiotis Andrikopoulos,
Arief Daynes,
Paraskevas Pagas
Publication year - 2011
Publication title -
s and p : sound and pictures
Language(s) - English
Resource type - Journals
ISSN - 1675-722X
DOI - 10.32890/ijbf2011.8.3.8427
Subject(s) - economics , period (music) , stock market , contrast (vision) , stock (firearms) , exploit , phenomenon , monetary economics , econometrics , financial economics , computer science , physics , history , computer security , quantum mechanics , acoustics , context (archaeology) , archaeology , artificial intelligence
Previous studies on the overreaction effect in the UK show that prior losers consistently outperform prior winners in the period 1975 to 1990. This paper extends current knowledge by assessing the above phenomenon in the UK market for the period 1987 to 2007. In contrast to earlier research, we produce evidence of a weak presence of the overreaction effect for the latest test period. Further, we show that, after adjusting for size, the overreaction effect almost disappears and any additional excess post-formation return to prior-losers is attributable to market cycles. This study implies that the presence of the overreaction effect in the UK stock market is time-varying and difficult to exploit in practice.