Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/180273
Authors: 
Caporale, Guglielmo Maria
Plastun, Alex
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7011
Abstract: 
This paper explores the frequency of price overreactions in the US stock market by focusing on the Dow Jones Industrial Index over the period 1990-2017. It uses two different methods (static and dynamic) to detect overreactions and then carries out various statistical tests (both parametric and non-parametric) including correlation analysis, augmented Dickey–Fuller tests (ADF), Granger causality tests, and regression analysis with dummy variables. The following hypotheses are tested: whether or not the frequency of overreactions varies over time (H1), is informative about crises (H2) and/or price movements (H3), and exhibits seasonality (H4). The null cannot be rejected except for H4, i.e. no seasonality is found. On the whole it appears that the frequency of overreactions can provide useful information about market developments and for designing trading strategies.
Subjects: 
stock markets
anomalies
overreactions
abnormal returns
VIX
frequency of overreactions
JEL: 
G12
G17
C63
Document Type: 
Working Paper

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