Does the Stock Market Overreact ?

  title={Does the Stock Market Overreact ?},
  author={Werner F. M. De Bondt and Richard Thaler},
Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to "overreact" to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP monthly return data, is consistent with the overreaction hypothesis. Substantial weak form market inefficiencies are discovered. The results also shed new light on the January returns earned by prior "winners" and… CONTINUE READING
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