Short-Term Overreaction in the Hong Kong Stock Market: Can a Contrarian Trading Strategy Beat the Market?

Otchere, Isaac; Chan, Jonathan

doi:10.1207/s15427579jpfm0403_5

Cited by 49 publications

(25 citation statements)

References 25 publications

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“…This assumption is in line with the theoretical model of Madhavan (1995). Like Otcchere and Chan (2003), he argues that although continuous markets show higher levels of price eciency during normal trading activity, they are prone to asymmetric information during periods of price uncertainty. Traditional circuit breaker, that rely on a halt, may intensify this problem as price communication is interrupted and coordination is not possible.…”

Section: Introductionsupporting

confidence: 58%

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Price Discovery in European Volatility Interruptions

Zimmermann

2013

SSRN Journal

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We study a special form of securities market circuit breaker, i.e., European volatility interruptions. Instead of halt trading like traditional circuit breaker, these short-living call auctions allow for continual price discovery after price limit hits. Based upon approximately 1,800 Xetra volatility interruption events from 01/2009 to 01/2012, we empirically assess whether such auctions contribute to price uncertainty resolution and how they inuence post-auction continuous trading. We nd that volatility interruptions dissolve on average 36 percent of the pre-interruption price uncertainty. In addition, our results provide strong indications that this level of price discovery is a major determinant in shaping post-interruption market quality as subsequent continuous trading benets conditionally on the price discovery contribution of the interruption. By analyzing drivers of volatility interruption price discovery, our results give indications that in contrast to a prolongation of the call phase, foremost traders' participation does promote the auction's ability to display a price relevant for future trading.

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Section: Introductionsupporting

confidence: 58%

“…Otcchere and Chan (2003) have found short-term investors to be especially prone to price overreactions in times of market distress. Price overreactions may create undesired excessive volatility further catalyzing price uncertainty and asymmetric information (Madhavan, 1995).…”

Section: Introductionmentioning

confidence: 99%

Price Discovery in European Volatility Interruptions

Zimmermann

2013

SSRN Journal

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“…Thus stocks where information diffuses slowly are more likely to reflect these behavioral biases, particularly in small-size and neglected stocks. Conflicting results for the Hong Kong stock market (before the 1997 Asian crisis) are reported by Otchere and Chan (2003) who find evidence of short-term overreaction, particularly for large-size firms. However, the abnormal returns from overreaction are economically insignificant after accounting for transaction costs.…”

Section: Price Limitsmentioning

confidence: 86%

Contrarian strategies and investor overreaction under price limits

Lin¹,

Swanson²

2009

J Econ Finan

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“…For example, Otchere, and Chan (2003) examined short run overreaction hypothesis in the Hong Kong market, the study period encompassed the pre and post Asian financial crises. They found evidence of overreaction in the market prior to the Asian financial crises and that the overreaction phenomenon was more pronounced for Winners than Losers.…”

Section: Emerging Marketsmentioning

confidence: 99%