We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

Overreaction Hypothesis and Contrarian Strategy (the efficiency of financial markets) - Essay Example

Comments (0)
One of the most basic issues discussed in studies of financial markets is that of its efficiency. Financial market efficiency implies that prices reflect the intrinsic values of the stocks being bought and sold in the market and that the development of the price of a stock over time is a random walk. …
Download full paper

Extract of sample
Overreaction Hypothesis and Contrarian Strategy (the efficiency of financial markets)

Download file to see previous pages... The OR hypothesis states that investors overreact to information, and that there are two ways by which investors exaggerate their reaction. In the face of bad news, for example, some investors think that the reality is worse and react over-pessimistically, while some think that the reality is not as bad as it seems and react over-optimistically.
So while bad news can be factored in by rational investors according to EMH and their effect on the value of the stock can be calculated before these investors begin to do anything (buy, sell, or hold), some investors are claimed by behavioural finance proponents as acting in irrational ways, making decisions based on their overreaction to information. The effect of overreaction is a large decline in stock prices when pessimistic investors begin to think that the bad news is not true and that the reality is much worse than it really is. The opposite effect holds in the face of good news: investors may overreact and think that the reality is better, so they buy stocks in the market.
This shows that some investors are biased in the way they interpret information, and this bias causes stock price anomalies that can be exploited by investors by using a contrarian strategy. ...Download file to see next pagesRead More
Comments (0)
Click to create a comment
Efficient Market Hypothesis: Is the Stock Market Efficient
Efficient Market Hypothesis: Is the Stock Market Efficient? Introduction Efficient Market Hypothesis (EMH), introduced four decades ago, was the dominating theory in the academic community that explained how the financial market works. Nowadays, although it is challenged by both the theoretical and practical studies (e.g.
7 Pages(1750 words)Literature review
Financial Markets Efficiency
The weak form suggests the idea that current prices have great influence of the past record of prices. In the form, the prices of securities are easily available to public representing the flimsy phenomenon therefore its name is weak form. It is natural that if majority of people were aware of a beneficial secret then ultimately very few on no one would be able to take advantage from it fully.
4 Pages(1000 words)Essay
Investigate and analyse the financial system of South Korea, Its level of development,The efficiency of its financial markets,an
This though changed in the 1980s when the government started liberalizing the banks but individuals were not allowed to purchase shares directly from these institutions. In the late 1980s, South Korea had a well established banking system as well as a securities market (Goldstein, 1998).
4 Pages(1000 words)Essay
Efficient Markets Hypothesis
The efficient markets hypothesis forms the basis for one of today’s major theories of the trading and valuation of financial instruments such as corporate stocks and bonds, as well as many other forms of equity or debt. It is vital for investors, traders, analysts,and others dealing with such instruments to understand how their values are determined.
4 Pages(1000 words)Essay
Consumer Values
The following research uses semi-structured interview method. This was chosen because it allows for the respondents to describe their subjective and empirical of their shopping experience. The semi-structured interview research method was chosen because it allows for the qualitative and emotional constructs of the consumers regarding their purchases to be examined.
21 Pages(5250 words)Research Paper
Market Efficiency Essay
The price momentum may be an outcome associated with the failure to understand and incorporate the forecasted trends of shock-earnings into pricing. This also derives from the fact that the profits, mainly, associated with a stock are from the capital gains aspect, rather than dividends, which is why the term 'price' and 'momentum' are used simultaneously.
10 Pages(2500 words)Essay
Efficiency Market Hypothesis
Thus if any investor desires to earn higher returns he has to buy much riskier shares or bonds. When stocks rose by high percentages the analysts said that it was due to the efficacy of stock markets and therefore the positive rally reflected the true performance of the companies.
8 Pages(2000 words)Essay
Is market efficient testing of Hong Kong stock market
a predictable manner, arbitrageurs would discern the trends, act on them, and make money at a rate above normal market returns and their actions would quickly bring stock prices to their intrinsic values. This set of assumptions is defined by the Efficient Market Hypothesis
6 Pages(1500 words)Essay
Efficient Markets Hypothesis(Financial Economics)
This form of efficiency therefore suggests that prices are random movements however various empirical research studies have suggested that
3 Pages(750 words)Essay
Let us find you another Essay on topic Overreaction Hypothesis and Contrarian Strategy (the efficiency of financial markets) for FREE!
Contact us:
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us