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Overreaction And Underreaction During The Covid-19 Pandemic In The South African Stock Market And Its Implications

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  • Samuel Tabot Enow

    (The IIE Vega School, South Africa)

Abstract

The aim of this study was to investigate overreaction and underreaction from the six main sectors in the Johannesburg stock exchange due to the significant impact of Covid-19 on economic activities and financial markets globally. Using a Threshold GARCH model, the findings revealed the presence of overreaction mostly in the healthcare, industrial and telecom sector. However, very few stocks in the banking and tech portrayed overreaction while none of the stocks in the consumer goods sector revealed the presence of overreaction or underreaction because the coefficient of the leverage term was statistically insignificant. From these findings, there is a high risk of investing in healthcare, industrial and telecom stocks, which is not compensated by additional returns. Investors can minimize risk in this sectors by adding healthcare, industrial and telecom stocks in a well- diversified portfolio and assigning a risk coefficient to their pricing. This study adds to the body of knowledge on market anomalies by looking at overreaction and underreaction during the coivid-19 pandemic, which is an important concept in behavioral finance. This study is significant to market participants that are willing to trade on the Johannesburg stock exchange as it provides valuable insights on behavioral pattern and anomalies.

Suggested Citation

  • Samuel Tabot Enow, 2022. "Overreaction And Underreaction During The Covid-19 Pandemic In The South African Stock Market And Its Implications," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(1), pages 19-26.
    • Handle: RePEc:ejn:ejbmjr:v:10:y:2022:i:1:p:19-26
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    References listed on IDEAS

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    Cited by:

    1. Samuel Tabot ENOW, 2023. "A Non-linear Dependency Test for Market Efficiency: Evidence from International Stock Markets," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 7(1), pages 1-12.
    2. Samuel Tabot Enow, 2023. "Investigating Joint Market Hypothesis during Periods of Financial Distress and its Implications," International Journal of Economics and Financial Issues, Econjournals, vol. 13(2), pages 46-50, March.
    3. Samuel Tabot ENOW, 2022. "Evidence of Adaptive Market Hypothesis in International Financial Markets," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 13(2), pages 48-55, December.

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