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Overreaction and the cross-section of returns: International evidence

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  • Blackburn, Douglas W.
  • Cakici, Nusret

Abstract

A number of theories have linked price momentum with price reversals. While significant empirical evidence has shown the presence of momentum in global equity returns, there have been no large-scale global studies of the subsequent long-term price reversal. We study returns from twenty-three developed countries categorized into the regions of North America, Europe, Japan, and Asia, over 1993–2014 and find evidence supporting the global presence of long-term price reversals. The positive return differential between loser stocks over the past three years and winner stocks over the past three years is economically and statistically significant. Results from independent double sorts and from Fama-MacBeth regressions show that long-term reversals remain significant after controlling for size, book-to-market equity, and momentum.

Suggested Citation

  • Blackburn, Douglas W. & Cakici, Nusret, 2017. "Overreaction and the cross-section of returns: International evidence," Journal of Empirical Finance, Elsevier, vol. 42(C), pages 1-14.
    • Handle: RePEc:eee:empfin:v:42:y:2017:i:c:p:1-14
    DOI: 10.1016/j.jempfin.2017.02.001
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    More about this item

    Keywords

    F30; G02; G10; G11; G12; Return predictability; Overreaction; Long-term reversals; Market efficiency; Cross-section of returns; International asset pricing;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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