Market Overreaction at the Beginning of Covid-19 Pandemic Periods in Indonesia Stock Exchange

This study aims to determine whether the markets overreaction occurred in Indonesian capital market in the beginning of Covid-19 pandemic periods, especially in Indonesia Stock Exchange. This market overreaction is the one of anomalies in capital market and is opposite the efficient market hypotheses. Bad or good information is a trigger for investors reactions that cause anomalies such as this market overreaction. The information can be sourced from internal and external conditions of the company. The external condition that is currently affecting the national and international economy are the Corona pandemic (Covid-19) which has spread around the end of 2019. Based on the phenomenon occurs, the purposes of this study are to test: (a) Did market overreaction occur in Indonesian capital market in the beginning of Covid-19 pandemic periods? (b) Is a contrarian strategy relevant to be implemented? (c) Does the market risk factor based on the CAPM will affect the abnormal return? Keywords: CAPM; Market Overreaction; Return Reversal

Foreign Exchange Volume

We investigate the information contained in foreign exchange (FX) volume using a novel data set from the over-the-counter market. We find volume helps predict next-day currency returns and is economically valuable for currency investors. Predictability implies a stronger return reversal for currency pairs with abnormally low volume and is driven by the component of volume unrelated to volatility, liquidity, and order flow. We rationalize these findings via a simple model, in which FX volume helps reveal the degree of asymmetric information in currency markets. Testing this prediction shows that asymmetric information is uniform across currency pairs but varies across instruments.

The effect of short-term return reversals on momentum profits

The authors investigate the effect of a short-term stock return reversal on the term structure of momentum profits in the Korean stock market following Goyal and Wahal (2015). Their empirical findings show that the term structure of momentum is more pronounced when a return reversal lasts up to two months but is substantially weakened when past performance over the last two months is not taken into account for portfolio formation. Their evidence suggests that the term structure of momentum profitability arises primarily from a carryover of the return reversal from the previous two months.

SHORT-TERM OVERREACTION OF ISLAMIC STOCKS TO SPECIFIC EVENTS IN INDONESIA

Overreaction is a phenomenon caused by stock market inefficiencies and also a reaction to certain events. Das and Krishnakumar (2016) explain that some overreaction phenomena violate the theory of capital market efficiency. As experienced by other stocks , Islamic stocks also probably experience market inefficiencies. This study aims to analyse the phenomenon of overreaction in Islamic stocks, as well as the factors that influence the phenomenon, by using a two-stage testing method: two paired sampling and cross-sectional regression. Two specific events which occurred in 2016-2018, and which were followed by price reversal and return reversal, are studied. The results show that the election of Donald Trump as US President (Event 1) and the bombingsin Surabaya (Event 2) were significant in the overreaction in the winner stock category. The factors that influenced the two events were different. The overreaction to Trump’s election proved to be significantly influenced by information leakage, while the bombings in Surabaya significantly affected the company ownership category . The results indicate that Islamic stocks continue to have several transactions which areprohibited by the DSN MUI fatwa in the short term.

Performance of stock portfolio based on contrarian strategy in indonesia stock exchange

This study aims to determine the differences in the performance of high abnormal stock portfolio during the test period compared with the performance of the stock portfolio in the formation period, the difference in the performance of the low abnormal return of the test period compared to the portfolio performance of the stock formation period, as well as the difference in the performance of the high abnormal return stock portfolio (winner) compared with a low abnormal return (loser) test period. The sample consists of shares included in the Kompas 100 index which are listed on the Indonesia Stock Exchange. The sampling method used in this study is a tiered sampling method that is analyzed by means of the two different test. The results showed that within a period of 12 months, there was a positive difference of 10.59% in the loser stock portfolio against the winner stock portfolio in the next period. Stocks that initially had low abnormal returns (losers) experienced a greater return reversal than the winner stock portfolio return in the next period, indicating a market anomaly associated with the overreaction hypothesis.

The Driving Forces of Stock Returns in Hong Kong

We comprehensively investigate what drives stock returns in Hong Kong stock market which has been consistently ranked as one of the most important markets for IPOs. We find that Hong Kong inflation rate is a systematic pricing factor across stocks after controlling for Fama-French three-factor. It is different from the U.S. market and other developed markets that the momentum, dividend yield, cash-flow yield, earnings yield, and return-reversal factors are not significant pricing factors for stock returns in Hong Kong. Our Fama-MacBeath (1973) regressions show that a stock’s value (cash-flow yield and book-to-market ratio) is the strongest predictor of stock returns in Hong Kong after controlling for market, value, and size factors and macroeconomic factors.

Return reversal effect in Shanghai A share market

Purpose The existing literature about return reversal effect in Chinese stock markets is inconclusive and controversial. Therefore, the purpose of this paper is to investigate the presence of return reversal effect in the Shanghai A stock market. Design/methodology/approach The authors used the late-stage contrarian strategy of Malin and Bornholt (2013) for the period March 2011‒March 2016. Findings The results show that there is a long-term return reversal effect in the Shanghai A stock market for the period March 2011‒March 2016. When portfolios are in the formation period (P=24 months), the excess returns are significant in the holding period, Q=6, 9, 12, 24 months. Further, there is also a significant short-term momentum effect in the Shanghai A stock market. For the robustness check, a new reversal factor was introduced into the Fama‒French three-factor model. Results show that portfolios have a smaller size and have lower book-to-market ratios; the return reversal factor explains a portion of the abnormal returns and coefficient of the reversal effect is significant. Research limitations/implications The authors caution readers from generalizing the findings of this study, as the sample is small and the focus is only on A stocks listed on the Shanghai Stock Exchange. Originality/value The present research expands the current literature by providing a comprehensive information about the presence of the long-term and short-term return reversal effects in Shanghai A stock market. Furthermore, the Chinese stock markets have distinctive features in comparison to the developed stock markets in terms of government control, institutional structure, liquidity, cultural background, etc. Such differences affect the pattern in stock returns compared with those observed in developed stock markets. Contrary to previous studies, the present study also accounts for robustness checks. Finally, it also evaluates the possible reasons for the return reversal effect in the Shanghai market.