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Short-term overreaction, underreaction and efficient reaction: evidence from the London Stock Exchange

Abstract : We examine short-term investor reaction to extreme events in the UK equity market for the period 1989 to 2004 and find that the market reaction to shocks for large capitalization stock portfolios is consistent with the Efficient Market Hypothesis, i.e. all information appears to be incorporated in prices on the same day. However, for medium and small capitalization stock portfolios our results indicate significant underreaction to both positive and negative shocks for many days subsequent to a shock. Furthermore, the underreaction is not explained by risk factors (e.g. Fama and French, 1996) calendar effects, bid-ask biases or unique global financial crises.
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https://hal-audencia.archives-ouvertes.fr/hal-01096009
Contributor : Sylvia Cheminel <>
Submitted on : Tuesday, December 16, 2014 - 4:07:01 PM
Last modification on : Thursday, July 19, 2018 - 4:58:09 PM

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Spyros I. Spyrou, Konstantinos Kassimatis, Emilios C. Galariotis. Short-term overreaction, underreaction and efficient reaction: evidence from the London Stock Exchange. Applied Financial Economics, Taylor & Francis (Routledge), 2007, 17 (3), pp.221-235. ⟨10.1080/09603100600639868⟩. ⟨hal-01096009⟩

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