IIMB Management Review

IIMB Management Review

Volume 31, Issue 3, September 2019, Pages 258-267
IIMB Management Review

Investor reaction to extreme price shocks in stock markets: A cross country examination

https://doi.org/10.1016/j.iimb.2019.03.004Get rights and content
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Abstract

This study attempts to investigate the presence of post event over- or under-reaction in stock markets of the top 10 countries by market capitalisation. An event is defined as an extreme price movement beyond a pre-defined threshold. Intra-day stock returns at 10-minute frequency starting from June 2009 till May 2016 have been analysed using average cumulative returns (ACR) and average cumulative abnormal returns (ACAR) for a 6-day duration after the event. It appears that there is presence of over- or under-reaction in 8 out of a total of 10 countries, and investors display psychological biases which lead to profit making opportunities.

Keywords

Over and under reaction
Stock markets
Abnormal returns
Efficient market hypothesis
Price shocks

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