Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105119
Authors: 
Caporale, Guglielmo Maria
Gil-Alana, Luis A.
Plastun, Alex
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5066
Abstract: 
This paper examines short-term price reactions after one-day abnormal price changes and whether they create exploitable profit opportunities in various financial markets. A t-test confirms the presence of overreactions and also suggests that there is an “inertia anomaly”, i.e. after an overreaction day prices tend to move in the same direction for some time. A trading robot approach is then used to test two trading strategies aimed at exploiting the detected anomalies to make abnormal profits. The results suggest that a strategy based on counter-movements after overreactions does not generate profits in the FOREX and the commodity markets, but it is profitable in the case of the US stock market. By contrast, a strategy exploiting the “inertia anomaly” produces profits in the case of the FOREX and the commodity markets, but not in the case of the US stock market.
Subjects: 
efficient market hypothesis
anomaly
overreaction hypothesis
abnormal returns
contrarian strategy
trading strategy
trading robot
t-test
JEL: 
G12
G17
C63
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.