Financial Behavior of Investors: Long-Run Overreaction Phenomenon in Euronext Stock Exchange
The research investigates the long-run overreaction phenomenon in EURONEXT stock exchange. Data of EURONEXT stock exchange for the period of 2000–2017 were employed for the winner and the loser portfolio formation and systemic risk adjustment with the CAP
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tract The research investigates the long-run overreaction phenomenon in EURONEXT stock exchange. Data of EURONEXT stock exchange for the period of 2000–2017 were employed for the winner and the loser portfolio formation and systemic risk adjustment with the CAPM. Robustness was checked with t-test statistics. The empirical findings revealed long-run reversal effect wherein past long-run loser portfolios outperformed past long-run winner portfolio supporting the overreaction hypothesis with the exception for the period of financial turmoil. This overreaction was close to symmetric: positive average cumulative adjusted returns for the loser portfolio were similar to negative returns for the winner portfolio. Even though the findings supported long-run overreaction in EURONEXT stock exchange, this phenomenon was explained by the differences in risk. Jensen alpha was statistically insignificant, systemic risk of loser portfolio was higher than the one of winner portfolio. These results are consistent with the Efficient Market Hypothesis and the investors’ rationality—there was no possibility to apply the contrarian strategy for earning abnormal returns. Our research contributes to the existing literature providing further evidence on financial behavior in welldeveloped stock markets, and overreaction phenomenon during the global financial crisis of 2008–2009 (GFC). Keywords Financial behavior · Long-run overreaction · Reversal effect · Contrarian strategy · Stock exchange
V. Aleknevičienė (*) · I. Aleksandravičiūtė Department of Economics and Management, Vytautas Magnus University, Kaunas, Lithuania e-mail: [email protected] © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Switzerland AG 2020 M. H. Bilgin et al. (eds.), Eurasian Economic Perspectives, Eurasian Studies in Business and Economics 15/1, https://doi.org/10.1007/978-3-030-48531-3_5
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V. Aleknevičienė and I. Aleksandravičiūtė
1 Introduction Financial markets are influenced by economic changes, institutional and political constraints, the dissemination, and availability of information and other factors. Among these factors the reaction and behavior of investors, i.e., their irrationality, becomes more and more important. In such a dynamic environment, a particular investor focuses more on the behavior of all the other investors rather than on the fundamental factors and rationality of investors under the neoclassical capital market theory. EURONEXT was formed in 2000 when merged the Amsterdam Stock Exchange, Brussels Stock Exchange, and Paris Bourse taking the advantage of the financial markets’ harmonization in the European Union (EU) (Kingdom of the Netherlands—Netherlands. . . 2004). EURONEXT is the largest stock exchange in Europe and one of the largest exchange networks in the world. It makes the stocks of listed companies globally accessible to institutional and retail investors as well. EURONEXT is structured and operated in a centralized market environment. Common rules decreed by the EU are applied
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