scholarly journals Misvaluation and behavioral bias in the Brazilian stock market

2019 ◽  
Vol 30 (79) ◽  
pp. 107-122
Author(s):  
José Bonifácio de Araújo Júnior ◽  
Otávio Ribeiro de Medeiros ◽  
Olavo Venturim Caldas ◽  
César Augusto Tibúrcio Silva
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Time Window ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Short Term ◽  
Publicly Traded Companies ◽  
Behavioral Biases ◽  
Three Samples ◽  
Investment Portfolios

ABSTRACT The study sought to apply the model developed by Gokhale et al. (2015) to identify the existence of overreaction and behavioral biases in the Brazilian stock market and analyze its performance as an investment strategy on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) in the short term and long term, as well as test its robustness with time window simulations. The impacts of behavioral finance on capital markets can affect economic decisions, perpetuate or increase asset pricing anomalies, and in more extreme and persistent situations contribute to the formation of bubbles that can compromise the entire financial system of a country. The study pioneers an innovative methodology in the Brazilian stock market for identifying behavioral biases and obtaining abnormal returns and higher returns than the Ibovespa. The research uses the model developed by Gokhale, Tremblay, and Tremblay (2015) in three samples with quotations data for Brazilian publicly-traded companies that compose the Ibovespa and IBrA in the period from 2005 to 2016. With the R statistical software, the Fundamental Valuation Index (FVI) was calculated for each sample share and each year. From the FVI index, the undervalued shares were identified, indicating that the sales price does not reflect their economic fundamentals, and portfolio simulations were carried out for investment over three months or the next year. The results indicate the possible existence of overreaction and behavioral biases in the Brazilian stock market, which lead to the possibility of higher abnormal returns than those of the Ibovespa. Similar to the US market, at the end of the 2006-2016 period simulated portfolios yielded more than 274%, while the Ibovespa yielded approximately 80%. The robustness tests attest to the effectiveness of the model. The various investment portfolios, simulated over different time horizons, yielded more than the Ibovespa on average. The study also confirmed the assumptions of Gokhale, Tremblay, and Tremblay (2015) regarding the model's inadequacy for short-term strategies.

Profit Analysis of Short Term Weekly Momentum Strategy in the Korean Stock Market

2015 ◽  
Vol 23 (4) ◽  
pp. 543-569
Author(s):  
Jun Ho Hwang
Keyword(s):  
Financial Crisis ◽  
Stock Market ◽  
Abnormal Returns ◽  
Short Term ◽  
Momentum Strategy ◽  
Momentum Strategies ◽  
Price Limit ◽  
Holding Period ◽  
Momentum Profits ◽  
Korean Stock Market

This paper shows the momentum strategies that selected stocks based on their returns from a past 1 week generate long lasting significant abnormal returns. I observe the negative momentum profit from 1 week momentum portfolio and it disappears when the holding period is longer than 22 week. In addition, I empirically shows that the weekly momentum strategies are able to generate negative profits also after the financial crisis. it is opposite result with literature, reported positive momentum after the financial crisis, I realize this result due to the characteristic of short term weekly momentum and market adjust returns. The price limit is one of the big features of Korean stock market. I consider the set of sample period by change of price limit. I find the positive momentum profits only in the period of narrow price limit range. For the check on the relation between liquidity and profit of momentum strategy, I employ the illiquid measure of Amihud (2002). I find that the strong and long lasting negative momentum profit from illiquid stock portfolio. This result implied that liquidity enhances the profit of momentum.

Dividend Buying: Linking Dividend Announcements and Ex-Dividend Day Effects

1995 ◽  
Vol 10 (3) ◽  
pp. 421-435 ◽  
Author(s):  
Helen M. Bowers ◽  
Donald Fehrs
Keyword(s):  
Stock Returns ◽  
Trading Volume ◽  
Abnormal Returns ◽  
Investment Strategy ◽  
Short Term ◽  
Return Variance ◽  
Dividend Announcements ◽  
Abnormal Volume ◽  
Abnormal Stock Returns ◽  
Short Term Investment

We provide a plausible explanation for earlier findings that positive abnormal stock returns associated with dividend announcements persist for several days and that abnormal volume and stock returns commence several days before a stock's ex-dividend day. This study links these two sets of findings to the short-term investment strategy of dividend buying by relating the abnormal returns and trading volume to individual stock characteristics favored by dividend buyers, namely the stock's return variance and dividend yield. We conclude that dividend buying is at least partially responsible for the abnormal returns and volume found between dividend announcement and ex-dividend days.

scholarly journals Enterprise Multiple and Future Returns of the Brazilian Stock Market

2017 ◽  
Vol 10 (3) ◽  
pp. 431
Author(s):  
Rafael Igrejas ◽  
Raphael Braga Da Silva ◽  
Marcelo Cabus Klotzle ◽  
Antonio Carlos Figueiredo Pinto ◽  
Paulo Vitor Jordão da Gama Silva
Keyword(s):  
Risk Factors ◽  
Stock Market ◽  
Cross Section ◽  
Predictive Power ◽  
Abnormal Returns ◽  
Strong Relationship ◽  
Investment Strategy ◽  
Emerging Countries ◽  
Investment Strategies ◽  
Developed Markets

The estimation of cross-section returns for defining investment strategies based on financial multiples has been proven to be relevant following Fama and French’s (1992) research. One of the challenges for such studies is to identify the main variables that are suitable for explaining the returns in a particular context because the variables that are widely used in developed markets behave differently in emerging countries. In this study, we analyze the predictive power of the EV/EBITDA multiple in the context of the Brazilian stock market. The results show that the analyzed multiple has a strong relationship with the future returns of companies listed on the BM&F BOVESPA index between 2005 and 2013. For the period under review, the investment strategy of purchasing stocks when EV/EBITDA was low and selling stocks when EV/EBITDA was high showed abnormal returns of 15.94% per year, even after controlling for risk factors.

scholarly journals How Has the Indonesian Stock Market Performed During Covid-19 Outbreaks?

2021 ◽  
Vol 22 (3) ◽  
pp. 1420-1428
Author(s):  
Doddy Setiawan ◽  
Taufiq Arifin ◽  
Y Anni Aryani ◽  
Josephine Tan-Hwang Yau
Keyword(s):  
Stock Market ◽  
Abnormal Returns ◽  
Term Effect ◽  
Short Term ◽  
Listed Firms ◽  
Finance Industry ◽  
Stock Market Reaction ◽  
Cumulative Abnormal Returns ◽  
First Case ◽  
Long Run

This paper analyzes the stock market reaction towards the Covid-19 pandemic by using a sample of Indonesian listed firms. In general, we document a significant negative cumulative abnormal returns when the Indonesian President announces the first case of Covid-19 in Indonesia. This effect remains ten days (weaker) after the announcement. However, we only find a short-term effect on the finance industry. While the explanation is still unclear, the investors may observe that the economic impact on the finance industry may arise in the long-run.

scholarly journals Do Higher-Rated or Enhancing ESG of Firms Enhance Their Long–Term Sustainability? Evidence from Market Returns in Korea

2020 ◽  
Vol 12 (7) ◽  
pp. 2664 ◽  
Author(s):  
Yeonwoo Do ◽  
Sunghwan Kim
Keyword(s):  
Stock Market ◽  
Firm Value ◽  
Stock Price ◽  
Abnormal Returns ◽  
Market Returns ◽  
Short Term ◽  
Stock Market Returns ◽  
Listed Firms ◽  
The Third

In this study, we investigate the effects of the level and changes in environmental, social and corporate governance (ESG) rating, an index developed to represent a firm’s long-term sustainability, on the stock market returns of Korea Composite Stock Price Index (KOSPI) listed firms over the period 2011–2018. We find that the changes in ESG ratings have statistically significant short-term effects on their abnormal returns. However, their impacts on short-term abnormal returns decrease some days after the disclosure and become negative in the third year. The results imply that investors in the Korean stock market do not view corporate social responsibility activities as a means of supporting their long-term sustainability, judging from the firm value for a long period after their rating. Rather, based on the effects of the changes on coefficient signs over the period—positive in the year and the year after, no effects in the following year, and negative in the third year and later—we can infer that the short-term oriented market sentiments of investors might worsen their long-term stock performances, thus deteriorating their sustainability and growth opportunities.

Examining investors' sentiments, behavioral biases and investment decisions during COVID-19 in the emerging stock market: a case of Pakistan stock market

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shagufta Parveen ◽  
Zoya Wajid Satti ◽  
Qazi Abdul Subhan ◽  
Nishat Riaz ◽  
Samreen Fahim Baber ◽  
...  
Keyword(s):  
Developing Countries ◽  
Stock Market ◽  
Behavioral Finance ◽  
Stock Markets ◽  
Investment Decisions ◽  
Equation Modeling ◽  
Disposition Effect ◽  
Content Type ◽  
Behavioral Biases ◽  
The Impact

PurposeThis study investigates the impact of the COVID-19 pandemic on investors' sentiments, behavioral biases and investment decisions in the Pakistan Stock Exchange (PSX).Design/methodology/approachThe authors have assessed investors' behaviors and sentiments and the stock market overreaction during COVID-19 using a questionnaire and collected data from 401 investors trading in the PSX.FindingsResults of structural equation modeling revealed that the COVID-19 pandemic affected investors' behaviors, investment decisions and trade volume. It created feelings of fear and uncertainty among market participants. Evidence suggests that behavioral heuristics and biases, including representative heuristic, anchoring heuristic, overconfidence bias and disposition effect, negatively influenced investors' decisions at the PSX.Research limitations/implicationsThis study will contribute to behavioral finance literature in the context of developing countries as it has revealed the impact of COVID-19 on the emerging stock market, and its results are generalizable to other emerging stock markets.Practical implicationsThe findings of this study will help academicians, researchers and policymakers of developing countries. Academicians can formulate new behavioral models that can depict the solutions of dealing with an uncertain situation like COVID-19. Policymakers like the Securities Exchange Commission and the PSX can formulate crisis management strategies based on behavioral finance concepts to cope with situations like COVID-19 in the future and help lessen investors' losses in the stock markets. The role of the Securities Exchange Commission is crucial as it regulates the financial markets. It can arrange workshops to educate investors to manage their decisions during crisis time and focus on the best use of irrational and rational decision-making at the same time using Lo (2004) adaptive market hypothesis.Originality/valueThe novelty of the paper is that the authors have introduced overconfidence and disposition effect as mediators that create a connection between representative and anchoring heuristics and investment decisions using primary data collected from investors (institutional and retail) to demonstrate the presence of psychological biases during COVID-19, and it has been done for the first time according to authors' knowledge. It is a contribution and addition to the behavioral finance literature in the context of developing countries' stock markets and their efficiency.

Overreaction effect: evidence from an emerging market (Shanghai stock market)

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Krishna Reddy ◽  
Muhammad Ali Jibran Qamar ◽  
Nawazish Mirza ◽  
Fangwei Shi
Keyword(s):  
Regression Analysis ◽  
Stock Market ◽  
Investment Strategy ◽  
Individual Investors ◽  
Medium Term ◽  
Short Term ◽  
Content Type ◽  
Reversal Effect ◽  
Additional Support ◽  
Term Analysis

PurposeThe purpose of the study is to examine overreaction effect in the Chinese stock market after the global financial crisis (GFC) of 2007 for all the stocks listed in Shanghai Stock Exchange (SSE) Composite 50 index.Design/methodology/approachTo capture overreaction effect in the stock listed at SSE 50 Index, a time series analysis of average cumulative abnormal return within a unified framework is applied for the period of January 2009 to December 2015. From these loser and winner portfolios, contrarian strategy is applied to build arbitrage portfolio, which is the difference of mean reversions between loser and winner portfolios. The portfolio construction is based on a 12-month formation period and 6-month testing period for intermediate-term analysis and. for short-term analysis, 6 month formation and 3 month testing periods. The authors also applied regression analysis to test a return reversal effect for the sampled period.FindingsResults show that contrarian strategy yields positive excess returns for the arbitrage portfolio for most of the testing periods. The intermediate baseline case shows the arbitrage portfolio producing an average excess return of 14.1%, while even the short-term one produces 4%, which is statistically significant at the 5% level. The study finds asymmetrical overreactions in the SSE especially for loser portfolios. The biggest winner and loser portfolios follow the mean reversal effect. Moreover, before-after test for the biggest winner and loser portfolios shows that the losers recovered and beat the market immediately.Practical implicationsThe study could benefit government, policy makers and regulators by studying how presence of more individual investors than institutional investors of China stock market leads to more irrational decisions giving rise to volatility. The regulators could build favourable policies for institutional investors to give them incentive to invest more than individual investors through which market volatility could be controlled.Originality/valueThis research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. The authors provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.Contribution to ImpactThis research contributes to market behaviour research, showing how working under hypotheses of overreaction; gains can be made with contrarian investment strategy through arbitrage portfolios. We provide specific additional support for the short and medium-term overreaction in the SSE for the period 2009–2015 using regression analysis.

scholarly journals The overreaction hypothesis: the case of Ukrainian stock market

2013 ◽  
Vol 11 (1) ◽  
pp. 406-422 ◽  
Author(s):  
Ronald Henry Mynhardt ◽  
Alexey Plastun
Keyword(s):  
Stock Market ◽  
Abnormal Returns ◽  
Original Method ◽  
Short Term ◽  
Daily Fluctuation ◽  
Price Movement ◽  
Significant Evidence ◽  
Contrarian Strategies ◽  
Daily Data ◽  
Overreaction Hypothesis

This paper examines the short-term price reactions after one-day abnormal price changes on the Ukrainian stock market. The original method of abnormal returns calculation is examined. We find significant evidence of overreactions using the daily data over the period 2008-2012. Our analysis confirms the hypothesis that after an abnormal price movement the size of contrarian price movement is usually higher then after normal (typical) daily fluctuation. Comparing Ukrainian data with the figures from US stock market it is concluded that the Ukrainian stock market is less efficient which gives rise to opportunities for extra profits obtained from trading based on contrarian strategies. Based on results of the research we also recommend some rules of trading on short-term market overreactions.

Calendar anomaly: unique evidence from the Indian stock market

2018 ◽  
Vol 15 (1) ◽  
pp. 87-108
Author(s):  
Harshita Harshita ◽  
Shveta Singh ◽  
Surendra S. Yadav
Keyword(s):  
Stock Market ◽  
Autocorrelation Function ◽  
Abnormal Returns ◽  
Content Type ◽  
Volatility Clustering ◽  
Year Effect ◽  
Augmented Dickey Fuller ◽  
Short Term Investment ◽  
Investment Portfolios ◽  
Indian Stock Market

Purpose The purpose of this paper is to ascertain the monthly seasonality in the Indian stock market after taking into consideration the market features of leptokurtosis, volatility clustering and the leverage effect. Design/methodology/approach Augmented Dickey-Fuller, Phillips-Perron and Kwaitkowski-Phillips-Schmidt-Shin tests are deployed to check stationarity of the series. Autocorrelation function, partial autocorrelation function and Ljung-Box statistics are employed to check the applicability of volatility models. An exponential generalized auto regressive conditionally heteroskedastic model is deployed to test the seasonality, where the conditional mean equation is a switching model with dummy variables for each month of the year. Findings Though the financial year in India stretches from April to March, the stock market exhibits a November effect (returns in November are the highest). Cultural factors, misattribution bias and liquidity hypothesis seem to explain the phenomenon. Research limitations/implications The paper endeavors to provide a review of possible explanations behind month-of-the-year effect documented in literature in the past four decades. Further, the unique evidence from the Indian stock market supports the argument in the literature that monthly seasonality, by nature, may not be a consistent/robust phenomenon. Therefore, it needs to be examined from time to time. Originality/value As the seasonality in the stock market and resultant anomalies are dynamic phenomena, the paper reports the current seasonality/anomalies prevalent in the Indian market. This would aid investors in designing short-term investment portfolios (based on anomalies present) in order to earn abnormal returns.

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