Abstract
ABSTRACT Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to “overreact” to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Substantial weak form market inefficiencies are discovered. The results also shed new light on the January returns earned by prior “winners” and “losers.” Portfolios of losers experience exceptionally large January returns as late as five years after portfolio formation.
Keywords
EconomicsPortfolioStock (firearms)Financial economicsMarket efficiencyStock marketEfficient-market hypothesisMonetary economicsEmpirical evidenceEconometricsBiologyGeography
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Publication Info
- Year
- 1985
- Type
- article
- Volume
- 40
- Issue
- 3
- Pages
- 793-805
- Citations
- 7074
- Access
- Closed
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Cite This
Werner F. M. De Bondt,
Richard H. Thaler
(1985).
Does the Stock Market Overreact?.
The Journal of Finance
, 40
(3)
, 793-805.
https://doi.org/10.1111/j.1540-6261.1985.tb05004.x
Identifiers
- DOI
- 10.1111/j.1540-6261.1985.tb05004.x