De Bondt, W. F. M., & Thaler, R. H. (). Does the stock market overreact. Journal of finance, 40, DeBondt, W.F. and Thaler, R. () Does the Stock Market Overreact The Journal of Finance, 40, Werner F M De Bondt and Richard Thaler · Journal of Finance, , vol. link: :bla:jfinan:vyip

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The paper ends with a brief summaryof conclusions. The related question of market equilibria with agents having heterogeneous expectations is investigated by Jarrow [13].

De Bondt and Thaler,Does the Stock Market Overreact_百度文库

Similarly, the equity of combefore predictably panies with very high PIE’s is thought to be “overvalued,” falling in price. Much to our surprise, the effect is observed as late as five years after portfolio formation. Every Decemberbetween andwinner and loser portfolios are formed on the basis of residual return behaviorover the previous five years. North-Holland, reprint of edition. One of the earliest observations about overreactionin markets was made by J. We will focus on stocks that have experiencedeither extreme capital gains or extreme losses over periods up to thalerr years.

They conclude that the existence of some rational agents is not sufficient to guarantee a rational expectations equilibrium in an economy with some of what they call quasi-rationalagents. De Bondt and Richard Thaler Source: With respect to the PIE effect, our results support the price-ratio hypothesis whereas low discussed in the introduction,i. Therefore, the empirical analysis is based on three types of return residuals: Thus, whenevera stock dropsout, the calculations involve an implicit rebalancing.


In order to estimate the relevant residuals, an equilibrium model must be specified. Over the last half-century, loser portfolios of 35 stocks outperformthe market by, on average, Adds and drops of anal In revising their beliefs, individuals tend to overweight recent information and underweightprior or base rate data. At present, there is no evidence to support that claim, except for the persistent positive relationship between dividend yield a variable that is correlated with the PIE ratio and January excess returns Keim [15].

Secondly,if prices “rebound” January, why is that effect so much larger in magnitude than the selling pressure that “caused”it during the final months of the previous year?

The winner portfolio, on the other hand, gains value at the end of the year and loses some in January for more details, see De Bondt [7]. People seem to make predictions according to a simple matching rule: The Journal of Finance, Vol. There ‘ Of course,the variabilityof stock prices may also reflect changes in real interest rates. The problem is particularlysevere with respect to the winner portfolio.

Clearly,the numberof independent replicationsvaries inversely with the length of the formationperiod. Their findings largely redefine the small firm effect as a “losing firm” effect around the turn-of-theyear. Both classes of behavior can be characterizedas displaying overreaction.

Length of Formation 0. While we are highly sensitive to these issues, we do not have the space to address them here.

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Discussion Several aspects of the research design deserve some further comment. This result may be due to his particular definition of the tax-loss selling measure. An alternative behavioral explanation for the anomaly based on investor hypothesis e.


The results in Figure 3 have some of the properties of a “trading rule. For, even if we knew the “correct” model of Em Rjt IFm it would explain only small part of the variation l1in Pit.

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This study of marketefficiencyinvestigateswhethersuch behavioraffects stock prices. Similar proceduresapply for the residuals of the loser portfolio. Therefore,no statistical tests are performed. The PIE ratio is presumed to be a proxy for some omitted factor which, if included in the “correct”equilibrium valuation model, would eliminate the anomaly. In order to judge whether, for any month t, the average residual return makes a contribution to either A CAR or ACARL,t, we can test whether it w,t is significantly different from zero.

There is no risk adjustmentexcept for movements of the market as a whole and the adjustment is identical for all stocks. For example, investor overreactionpossibly explains Shiller’s earlier [26] findings that when long-term interest rates are high relative to short rates, they tend to move down later on.

However, the companies in the extreme portfolios do not systematically differ with respect to market capitalization.