Investor Overreation During Market Declines: Evidence from the 1997 Asian Financial Crisis
Posted: 22 Apr 2005
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: Suggested Citation