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Stock Market Overreaction and Trading Volume: Evidence from Malaysia

Author

Listed:
  • Ruhani Ali

    (Graduate School of Business, Universiti Sains Malaysia, 11800 USM Pulau Pinang)

  • Zamri Ahmad

    (School of Management, Universiti Sains Malaysia, 11800 USM Pulau Pinang)

  • Shangkari V. Anusakumar

    (School of Management, Universiti Sains Malaysia, 11800 USM Pulau Pinang)

Abstract

We investigate the stock market overreaction in Bursa Malaysia from January 2000 to October 2010 using weekly data. We find that winner portfolios tend to have negative returns whereas loser portfolios have positive returns for various holding periods from 1 to 52 weeks. Loser stocks experience more persistent and stronger return reversals than winner stocks. The evidence implies that a lower level of overreaction exists for winner stocks. Overall, a loser-winner portfolio yields highly significant returns. Comparing the overreaction of low-, medium- and high-volume stocks, we find that low volume stocks experience more consistent and larger return reversals. Therefore, trading volume is inversely related to overreaction. We also document more persistent overreaction for loser than winner stocks for all volume categories. The results suggest that investor may be able to obtain significant profits by implementing a short term contrarian strategy focused on low volume stocks.

Suggested Citation

  • Ruhani Ali & Zamri Ahmad & Shangkari V. Anusakumar, 2011. "Stock Market Overreaction and Trading Volume: Evidence from Malaysia," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 7(2), pages 103-119.
    • Handle: RePEc:usm:journl:aamjaf00702_103-119
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    Citations

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    Cited by:

    1. Jasman Tuyon & Zamri Ahmad & Hylmee Matahir, 2016. "The Roles of Investor Sentiment in Malaysian Stock Market," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 12(Suppl. 1), pages 43-75.
    2. Riza Praditha & Haliah & Abdul Hamid Habbe & Yohanis Rura, 2019. "Market Overreaction on LQ45 Stock Index before and after Asian Games 2018," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(2), pages 117-125, April.
    3. Jasman Tuyon & Zamri Ahmada, 2016. "Behavioural finance perspectives on Malaysian stock market efficiency," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 16(1), pages 43-61, March.
    4. Shangkari V. Anusakumar & Ruhani Ali & Hooy Chee Wooi, 2017. "The Effect of Investor Sentiment on Stock Returns: Insight from Emerging Asian Markets," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 13(1), pages 159-178.
    5. 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.

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