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Investor and market overreaction: a retrospective

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  • Werner De Bondt

Abstract

Purpose - Are the capital markets of leading industrialized nations rational and efficient? This powerful hypothesis was badly dented by the work of De Bondt and Thaler (1985) on stock market overreaction and by subsequent research on momentum and reversals in prices and earnings. Design/methodology/approach - Human psychology, at times predictably irrational, drives the markets. This paper investigates this issue. Findings - The author reviews the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance. Originality/value - The paper reveals the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.

Suggested Citation

  • Werner De Bondt, 2020. "Investor and market overreaction: a retrospective," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 12(1), pages 11-20, May.
    • Handle: RePEc:eme:rbfpps:rbf-12-2019-0175
    DOI: 10.1108/RBF-12-2019-0175
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    Keywords

    Finance; Investor markets;

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