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Overreaction And Reverse Anticipation: Two Related Puzzles?

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  • Youguo Liang
  • Donald J. Mullineaux

Abstract

In this article we investigate stock price behavior before and after surprise events. We form four base portfolios and sixteen control portfolios, taking into consideration the event direction, the magnitude of event‐day surprises, the potentially confounding effects due to calendar regularities in stock returns, and the ex‐post outlier month of October 1987. Using capital market data from 1964 to 1989, we find a pre‐event stock price behavior pattern that we call the reverse anticipation puzzle. We also confirm the existence of the overreaction pattern. The pre‐ and post‐event stock price behavior patterns are found to be similar.

Suggested Citation

  • Youguo Liang & Donald J. Mullineaux, 1994. "Overreaction And Reverse Anticipation: Two Related Puzzles?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 17(1), pages 31-43, March.
    • Handle: RePEc:bla:jfnres:v:17:y:1994:i:1:p:31-43
    DOI: 10.1111/j.1475-6803.1994.tb00172.x
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    Cited by:

    1. Mazouz, Khelifa & Joseph, Nathan Lael & Palliere, Clement, 2009. "Stock index reaction to large price changes: Evidence from major Asian stock indexes," Pacific-Basin Finance Journal, Elsevier, vol. 17(4), pages 444-459, September.
    2. Lin, J. Barry & Onochie, Joseph I. & Wolf, Avner S., 1999. "Weekday variations in short-term contrarian profits in futures markets," Review of Financial Economics, Elsevier, vol. 8(2), pages 139-148.
    3. Amini, Shima & Gebka, Bartosz & Hudson, Robert & Keasey, Kevin, 2013. "A review of the international literature on the short term predictability of stock prices conditional on large prior price changes: Microstructure, behavioral and risk related explanations," International Review of Financial Analysis, Elsevier, vol. 26(C), pages 1-17.
    4. Jang, Woan-Yuh & Lee, Jie-Haun & Hu, Hsueh-Chin, 2016. "Halo, horn, or dark horse biases: Corporate reputation and the earnings announcement puzzle," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 272-289.
    5. Lasfer, M. Ameziane & Melnik, Arie & Thomas, Dylan C., 2003. "Short-term reaction of stock markets in stressful circumstances," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 1959-1977, October.
    6. Borgards, Oliver & Czudaj, Robert L., 2020. "The prevalence of price overreactions in the cryptocurrency market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 65(C).
    7. J.Barry Lin & Joseph I. Onochie & Avner S. Wolf, 1999. "Weekday variations in short‐term contrarian profits in futures markets," Review of Financial Economics, John Wiley & Sons, vol. 8(2), pages 139-148, September.
    8. Boubaker, Sabri & Farag, Hisham & Nguyen, Duc Khuong, 2015. "Short-term overreaction to specific events: Evidence from an emerging market," Research in International Business and Finance, Elsevier, vol. 35(C), pages 153-165.
    9. Bowman, Robert G. & Iverson, David, 1998. "Short-run overreaction in the New Zealand stock market," Pacific-Basin Finance Journal, Elsevier, vol. 6(5), pages 475-491, November.

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