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Winners And Losers On Nyse: A Re‐Examination Using Daily Closing Bid‐Ask Spreads

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  • Aigbe Akhigbe
  • Thomas Gosnell
  • T. Harikumar

Abstract

We study a sample of NYSE stocks that experienced a large one‐day price change during 1992 and were reported as daily largest percentage gainers and largest percentage losers in the Wall Street Journal. The sample indicates significant reversals during the immediate post‐announcement period. We test for market efficiency by using bid‐ask spreads obtained from the transactions data for the days immediately after the announcement. The overall results indicate that the returns during the reversal period are less than the average bid‐ask spread during the same time. We also find that major losers, firms with −20 percent to −50 percent event‐date abnormal returns, experience price reversals generating returns that are significantly greater than the average bid‐ask spread during that period. We interpret this result as consistent with the overreaction hypothesis. A test of a trading rule to exploit this overreaction is not profitable, providing support for weak‐form market efficiency.

Suggested Citation

  • Aigbe Akhigbe & Thomas Gosnell & T. Harikumar, 1998. "Winners And Losers On Nyse: A Re‐Examination Using Daily Closing Bid‐Ask Spreads," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 21(1), pages 53-64, March.
    • Handle: RePEc:bla:jfnres:v:21:y:1998:i:1:p:53-64
    DOI: 10.1111/j.1475-6803.1998.tb00269.x
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    Cited by:

    1. Gülin Vardar & Berna Okan, 2008. "Short Term Overreaction Effect: Evidence on the Turkish Stock Market," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Oguz Esen & Ayla Ogus (ed.), Proceedings of the Conference on Emerging Economic Issues in a Globalizing World, pages 155-165, Izmir University of Economics.
    2. Asiya Sohail & Attiya Yasmin Javid, 2014. "The Global Financial Crisis and Investors’ Behaviour; Evidence from the Karachi Stock Exchange," PIDE-Working Papers 2014:106, Pakistan Institute of Development Economics.
    3. 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.
    4. 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.
    5. Guglielmo Maria Caporale & Luis Gil-Alana & Alex Plastun, 2018. "Short-Term Price Overreactions: Identification, Testing, Exploitation," Computational Economics, Springer;Society for Computational Economics, vol. 51(4), pages 913-940, April.
    6. Stephen Larson, 2004. "Real Estate Investment Trusts and Stock Price Reversals," The Journal of Real Estate Finance and Economics, Springer, vol. 30(1), pages 81-88, October.
    7. 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).
    8. Parikakis, George S. & Syriopoulos, Theodore, 2008. "Contrarian strategy and overreaction in foreign exchange markets," Research in International Business and Finance, Elsevier, vol. 22(3), pages 319-324, September.

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