Investor Overreation During Market Declines: Evidence from the 1997 Asian Financial Crisis

Posted: 22 Apr 2005

See all articles by Karyn Neuhauser

Karyn Neuhauser

George Washington University - Department of Finance

David Michayluk

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Abstract

Unlike the 1987 stock market crash, the 1997 stock market decline was clearly preceded by new information that affected fundamental values of U.S. firms. We provide a detailed description of U.S. stock returns surrounding the Asian financial crisis. Consistent with the overreaction hypothesis, we find strong evidence of a magnitude effect in short-term return reversals. Additionally, we find evidence of short-term return predictability in the aftermath. Our results are robust to controls for size, price, risk, and bid-ask bounce effects. Overall, the results are indicative of investor overreaction in times of market crisis.

Keywords: Overreaction, market crisis

JEL Classification: G14

Suggested Citation

Neuhauser, Karyn and Michayluk, David, Investor Overreation During Market Declines: Evidence from the 1997 Asian Financial Crisis. Available at SSRN: https://ssrn.com/abstract=704604

Karyn Neuhauser (Contact Author)

George Washington University - Department of Finance ( email )

2023 G Street
Washington, DC 20052
United States
202-994-9465 (Phone)
202-994-5014 (Fax)

David Michayluk

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Finance Discipline Group
UTS Business
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,630
PlumX Metrics