Overreaction hypothesis: An analysis of the Malaysian stock market

Melissa Selimah Sibat Anak Simon, (2004) Overreaction hypothesis: An analysis of the Malaysian stock market. Universiti Malaysia Sabah. (Unpublished)

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Abstract

The Overreaction Hypothesis implies that investors tend to overreact to dramatic news and events. Undervalued prior losers' stocks given adequate time will outperform the stock market. This dissertation investigates the Overreaction Hypothesis as proposed by De Bondt and Thaler (1985, 1987) in the Malaysian stock market. Monthly returns of one hundred companies listed in the Kuala Lumpur Stock Exchange Main Board were analyzed. This event study analysis is conducted from January 1990 to December 2001. Parametric methodology (regression test) was used to examine the existence of overreaction in Malaysian stock market. Test results showed that the Malaysian stock market generally does not overreact. Four out of ten test periods found no stock market overreaction. Overreaction only occurred in 1997-98 and 2000-01. 'Winners' portfolio returns is 20.16 percent on average while 'Losers' portfolios earned an average return of -13.20 percent. Results of test on January effect showed that a winning firm does not lose in the coming year and losing firms will gain positive returns in January of subsequent year.

Item Type: Academic Exercise
Uncontrolled Keywords: overreaction, parametric methodology, Malaysian stock market, Kuala Lumpur Stock Exchange Main Board, winning finn
Subjects: Q Science > QA Mathematics
Divisions: SCHOOL > School of Science and Technology
Depositing User: MDM SITI AZIZAH IDRIS
Date Deposited: 20 Feb 2014 05:26
Last Modified: 11 Oct 2017 23:57
URI: http://eprints.ums.edu.my/id/eprint/8216

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