De Bondt, W. F. M., & Thaler, R. H. (). Does the stock market overreact. Journal of finance, 40, DeBondt, W.F. and Thaler, R. () Does the Stock Market Overreact The Journal of Finance, 40, Werner F M De Bondt and Richard Thaler · Journal of Finance, , vol. link: :bla:jfinan:vyip

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Publisher contact information may be obtained at http: De Bondt [7] formally derives the econometric biases in the estimated marketadjusted and market model residuals if the “true”model is multifactor, e. The term overreaction carries with it an implicit comparison to some degree of reaction that is consideredto be appropriate. They conclude that the existence of some rational agents is not sufficient to guarantee a rational expectations equilibrium in an economy with some of what they call quasi-rationalagents.

The Theoryof Investment Value. If no such quote is availablebecause the stockholdersreceive nothing for their shares, the return is entered as minus one.


Adds and drops of anal The requirementthat 85 subsequent returns are available before any firm is allowed in the sample biases the selection towards large, established firms.

Consistent with the overreaction hypothesis, evidence of weak-form market inefficiency is found. Cambridge University Press, Specifically, two hypotheses are suggested: How does the anomaly survive the process of arbitrage?


The measure is related to the securities’ relative price movementsover the last six monthspriorto portfolioformationonly. However,Basu [4] found a significant PIE effect after controlling for firm size, and earlier Graham [11] even found an effect within the thirty Dow Jones Industrials,hardly a group of small firms!

Most financial economists seem to regardthe anomaly as a statistical artifact. The bias can be seen by comparingthe CAPM-betasof the extreme portfolios.

Figure 1 shows the movement of the ACAR’s as we progress through the test period. If there were a persistent tendency for the portfolios to differ on dimensions that may proxy for “risk,” then, again, we cannot be sure whetherthe empiricalresults support market efficiency or market overreaction. At present, there is no evidence to support that claim, except for the persistent positive relationship between dividend yield a variable that is correlated with the PIE ratio and January excess returns Keim [15].

De Bondt and Thaler,Does the Stock Market Overreact_百度文库

Grether [12] has replicatedthis finding under incentive compatible conditions. For example, investor overreactionpossibly explains Shiller’s earlier [26] findings that when long-term thler rates are high relative to short rates, they tend to move down later on.

Table I confirms the prediction of the overreaction hypothesis. If no trade is possible, CRSP tries to find a subsequentquote and uses it to computea returnfor the last period. They include, among others, the “bid-ask” effect and the consequences of infrequenttrading. Of course, unless these omitted factors can be identified, the hypothesis is untestable.

Firms in the top 35 stocks or the top 50 stocks, or the top decile are assigned to the winner portfolio W; firms in the bottom 35 stocks or the bottom 50 stocks, or the bottom decile to the loser portfolio L. The excess volatility issue has been investigated most thoroughly by Shiller [27].


First, if in early January selling pressure disappears debontd prices “rebound”to equilibriumlevels, why does the loser portfolio-even while it outperformsthe market-“rebound” once again in the second January of the test period? Figure 3 shows the Debondf for an experiment with a five-year-longtest period. Does the Stock Market The results in Figure 3 have some of the properties of a “trading rule. Thus, if many investorschoose to wait longer than six months before realizinglosses, the portfolio of small firms may still contain many “losers.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in hhaler trusted digital archive. Relevant t-statistics can be found for each of the 36 postformation months but they do not represent independent evidence.

Instead, we will concentrate on an empiricaltest of the overreaction hypothesis. And in again,in the third and fourthJanuaries?