Momentum Returns in the Spanish Stock Market: Model Misspecification or Investor Irrationality?

Forner, Carlos; Marhuenda, Joaquín

doi:10.2139/ssrn.492303

Cited by 3 publications

(3 citation statements)

References 48 publications

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“…11 These results are consistent with those reported in Forner and Marhuenda (2004) This phenomenon can also be observed in the results reported by Karolyi and Kho (2004), since, in the simulations without replacement, the simulated returns increase almost to the level of the original momentum returns.…”

Section: 2-resultssupporting

confidence: 84%

“…The explanation is still not entirely convincing, even when asymmetric risk factors are added, Muga and Santamaría (2006c). Clear findings also fail to emerge from tests of the implications drawn from the different behavioural models, [Forner and Marhuenda (2004) or Muga and Santamaría (2006a)]. This is due both to the type of portfolio analysis that is required and to the relatively small number of stock listed in the Spanish stock market.…”

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confidence: 99%

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The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market

Muga

Santamaria

2007

Quantitative Finance

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In this paper we use generally applicable non-parametric methods in an attempt to sort out the possible sources of momentum in stock markets (behavioural theories or omitted risk factors). Specifically, we present the results of bootstrap analysis and stochastic dominance tests for the Spanish stock market. Our results from the bootstrap analysis are found to depend on the resampling method used (with or without replacement). Nevertheless, the various stochastic dominance techniques applied lead us to the same conclusion, namely that the winner portfolio stochastically dominates the loser portfolio, which is not consistent with the general asset-pricing models developed for risk-averse investors. This promotes interest in analysing theories that relax the unbounded rationality assumptions that support many of the classical asset-pricing models.Market efficiency, Behavioural finance, Empirical asset pricing, Anomalies in prices,

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Section: 2-resultssupporting

confidence: 84%

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confidence: 99%

The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market

Muga

Santamaria

2007

Quantitative Finance

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“…For the Spanish stock market, intense overreaction was observed from 1967-1984 to 1963-1997, which gets stronger when longer formation and testing periods are used (Alonso and Rubio, 1990;Forner and Marhuenda, 2004). Stock (1990) for Germany, Swallow and Fox (1998) for New Zealand and Dubois and Bacmann (1998) for France confirmed the presence of overreaction effect and reported that contrarian strategy leads to smaller yet significant profits.…”

Section: Ijmf 173mentioning

confidence: 79%

Overreaction effect: evidence from an emerging market (Shanghai stock market)

Reddy

Qamar

Mirza

et al. 2020

IJMF

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PurposeThe purpose of the study is to examine overreaction effect in the Chinese stock market after the global financial crisis (GFC) of 2007 for all the stocks listed in Shanghai Stock Exchange (SSE) Composite 50 index.Design/methodology/approachTo capture overreaction effect in the stock listed at SSE 50 Index, a time series analysis of average cumulative abnormal return within a unified framework is applied for the period of January 2009 to December 2015. From these loser and winner portfolios, contrarian strategy is applied to build arbitrage portfolio, which is the difference of mean reversions between loser and winner portfolios. The portfolio construction is based on a 12-month formation period and 6-month testing period for intermediate-term analysis and. for short-term analysis, 6 month formation and 3 month testing periods. The authors also applied regression analysis to test a return reversal effect for the sampled period.FindingsResults show that contrarian strategy yields positive excess returns for the arbitrage portfolio for most of the testing periods. The intermediate baseline case shows the arbitrage portfolio producing an average excess return of 14.1%, while even the short-term one produces 4%, which is statistically significant at the 5% level. The study finds asymmetrical overreactions in the SSE especially for loser portfolios. The biggest winner and loser portfolios follow the mean reversal effect. Moreover, before-after test for the biggest winner and loser portfolios shows that the losers recovered and beat the market immediately.Practical implicationsThe study could benefit government, policy makers and regulators by studying how presence of more individual investors than institutional investors of China stock market leads to more irrational decisions giving rise to volatility. The regulators could build favourable policies for institutional investors to give them incentive to invest more than individual investors through which market volatility could be controlled.Originality/valueThis research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. The authors provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.Contribution to ImpactThis research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. We provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

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Análisis de la reacción del Ibex35 ante shocks positivos y negativos

Quirós

Izquierdo

2012

Revista Europea de Dirección y Economía de la Empresa

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Momentum Returns in the Spanish Stock Market: Model Misspecification or Investor Irrationality?

Cited by 3 publications

References 48 publications

The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market

The momentum effect: omitted risk factors or investor behaviour? Evidence from the Spanish stock market

Overreaction effect: evidence from an emerging market (Shanghai stock market)

Análisis de la reacción del Ibex35 ante shocks positivos y negativos

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