Faculty of Commerce, Law and Management

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Subject: search.filters.subject.Investor overreaction

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    The Persistence of Investor Overreaction on the JSE
    (2012-12-04) Brand, Rian
    Since the 1980s, behavioural finance has chipped away at the efficient market hypothesis by pointing out several anomalies, such as market overreaction. The efficient market hypothesis predicts that once an anomaly has been identified, the markets will arbitrage it away. The question asked is whether the effect of market overreaction has reduced as the market took note of this anomaly. Using market data from the JSE, it was tested to ascertain whether the effect of the market overreaction has reduced over time and if this anomaly also fluctuates over time. It was found that the arbitrage opportunity presented by market overreaction fluctuates with market cycles and that the effect of overreaction has diminished over time. Although market overreaction can still be used in the South African equity market to generate outperformance, the market has arbitraged out much of the advantage that could be gained from exploiting it.
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    INVESTOR OVERREACTION ON THE HONG KONG AND FRANKFURT STOCK EXCHANGES
    (2011-11-03) Marais, Jean-Pierre
    The ability to successfully exploit the presence of investor overreaction has been identified in a number of stock exchanges, yet numerous examples exist where little or un-exploitable investor overreaction is found. This research attempts to identify an international market where a) useful investor overreaction exists, and b) relatively strong currency performance adds further returns. From a list of 17 potential stock exchanges in developed and semi-developed markets, 2 bourses were selected for detailed evaluation –namely the Hong Kong and Frankfurt Stock Exchanges. Twelve years of historical data were used to determine the extent of out-performance possible. Advances on previous research include the use of filtering techniques to exclude high risk shares, the quantification of volatility when investing in “loser” portfolios, and the determination of risk adjusted out-performance. While significant, risk-adjusted out-performance was verified in the Stock Exchange of Hong Kong, no significant overreaction was found on the Frankfurt Stock Exchange.