The overreaction hypothesis in the UK market: empirical analysis

Authors: Mazouz, Khelifa¹; Li, Xiafei²

Source: Applied Financial Economics, Volume 17, Number 13, September 2007 , pp. 1101-1111(11)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

This article tests the overreaction hypothesis using data from the UK stock market. The study covers a period of 30 years (from 1973 to 2002). The results initially seem to be consistent with the overreaction hypothesis and no obvious seasonal pattern can be identified. Our results do not depend on whether buy-and-hold returns (BHR) or cumulative abnormal returns (CAR) used to compute the returns of the arbitrage portfolio. The overreaction phenomenon is still observable even after controlling for the size effect and the time-varying nature of risk.

Document Type: Research article

DOI: http://dx.doi.org/10.1080/09603100600749303

Affiliations: 1: Department of Finance, Accounting and Law, Aston Business School, Aston University, Birmingham B4 7ET, UK 2: Department of Accounting and Law, Portsmouth Business School, Portsmouth, PO1 3DE, UK

Publication date: 2007-09-01

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