De Bondt, W. F. M., & Thaler, R. H. (). Does the stock market overreact. Journal of finance, 40, Werner F M De Bondt and Richard Thaler · Journal of Finance, , vol. link: :bla:jfinan:vyip Behavioral finance theorists Werner De Bondt and Richard Thaler released a study in the Journal of Finance called “Does the Market Overreact?” In their .

Author: Yozshuhn Gutaxe
Country: Peru
Language: English (Spanish)
Genre: Literature
Published (Last): 4 June 2007
Pages: 188
PDF File Size: 15.53 Mb
ePub File Size: 1.48 Mb
ISBN: 938-9-24432-978-3
Downloads: 46701
Price: Free* [*Free Regsitration Required]
Uploader: Douzilkree

Empirical Tests The empirical testing proceduresare a variant on a design originally proposed by Beaver and Landsman [5] in a different context.

Werner De Bondt – Wikipedia

However, for selected experiments,the portfolio formation and testing periods are one, two, and five years long. De Bondt [7] formally derives the econometric biases in the estimated marketadjusted and market model residuals if the “true”model is multifactor, e. Table I confirms the prediction of the overreaction hypothesis. My profile My library Metrics Alerts.

Therefore,we will only report the results based on market-adjusted excess returns. There is no risk adjustmentexcept for movements of the market as a whole and the adjustment is identical for all stocks.

For example, investor overreactionpossibly explains Shiller’s earlier [26] findings that when long-term interest rates are high relative to short rates, they tend to move down later on.


The procedure is repeated 16 times starting in JanuaryJanuaryNew citations to this author. If a security’s return is missing in a month subsequentto portfolio formation,then, from that moment on, the stock is permanently droppedfrom the portfolio and the CAR is an average of the availableresidualreturns. Implicationsfor OtherEmpirical Work The results of this study have interesting implications for previous work on the small firm effect, the January effect and the dividend yield and PIE effects.


It has now been well-established that Bayes’ rule is not an apt characterization of how individuals actually respond to new data Kahneman et al.

The measure is related to the securities’ relative price movementsover the last six monthspriorto portfolioformationonly. However, the companies in the extreme portfolios do not systematically differ with respect to market capitalization.

The system can’t perform the operation now. North-Holland, reprint of edition. The Theoryof Investment Debondr. If trading continues, the last return ends with the last listed price. The devondt volatility issue has been investigated most thoroughly by Shiller [27]. Figure 3 shows the ACAR’s for an experiment with a five-year-longtest period.

This “Cited by” count includes citations to the following articles in Scholar. Consistent with the overreaction cebondt, evidence of weak-form market inefficiency is found. This observation is in agreement with the naive version of the tax-loss selling hypothesis as explained by, e. Handbook of the Economics of Finance 1, We will now describe the basic research design used to form the winner and loser portfolios and the statistical test proceduresthat determine which of the two competing hypotheses receives debonst support from the data.

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. Persistently, losers earn exceptionally large January returns while winners do not.

The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. To repeat, our goal is to test whether the overreactionhypothesis is predictive. Reinganum [21] has claimed that the small firm effect subsumes the PIE effect and that both are related to the same set of missing and againunknown factors. The findings have other notable thaleg. Stock and the Futures An easy way to generate more less extreme observations is to lengthen shorten the portfolio formationperiod;alternatively, for any given formation period say, two yearswe may compare the test period performance of less versus more extreme portfolios, e.


In order to judge whether, for any month t, the average residual return makes a contribution to either A CAR or ACARL,t, we can test whether it w,t is significantly different from zero. Some empirical evidence on dynamic inconsistency R Thaler Economics letters 8 3, If so, the price movementsof other assets-such as land or housing-should tnaler those of stocks. Does the Stock Market Overreact? Improving decisions about health, wealth, and happiness TC Leonard Constitutional Political Economy 19 4, Thus, the loser portfolios not only outperformthe winnerportfolios;if the CAPM is correct, they are also significantly less risky.

Finally, in surprisingagreementwith Benjamin Graham’s ddebondt, the overreactionphenomenon mostly occurs during the second and third year of the test period. Conclusions Research in experimental psychology has suggested that, in violation of Bayes’ rule, most people “overreact”to unexpected and dramatic news events. Journal of Behavioral decision making 12 3, The following articles are debondf in Scholar.

When a security is delisted, suspendedor halted, CRSP determineswhether or not it is possible to trade at the last listed price.