De Bondt, W. F. M., & Thaler, R. H. (). Does the stock market overreact. Journal of finance, 40, Werner F M De Bondt and Richard Thaler · Journal of Finance, , vol. link: :bla:jfinan:vyip Behavioral finance theorists Werner De Bondt and Richard Thaler released a study in the Journal of Finance called “Does the Market Overreact?” In their .
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Richard Thaler – Google Scholar Citations
JSTOR’s Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. They conclude that the existence of some rational agents is not sufficient to guarantee a rational expectations equilibrium in an economy with some of what they call quasi-rationalagents.
Careful examination of Figure 3 also reveals a tendency, on the part of the loser portfolio, to decline in value relativeto the market between October and December.
To repeat, our goal is to test whether the overreactionhypothesis is predictive. The present empiricaltests are to our knowledgethe first attempt debondr use a behavioralprinciple to predict a new market anomaly.
De Bondt and Thaler,Does the Stock Market Overreact_百度文库
The excess volatility issue has been investigated most thoroughly by Shiller . Explanations are usually based on alleged misspecificationof the capital asset pricing model CAPM. There is also considerable evidence that the actual thalre of professionalsecurity analysts and economic forecastersdisplay the same overreactionbias for a review, see De Bondt .
Thus, if many investorschoose to wait longer than six months before realizinglosses, the portfolio of small firms may still contain many “losers. Their combined citations are counted only for the first article.
One method that allows us to further accentuate the strength of the January effect is to increase the number of replications. The term overreaction carries with it an implicit comparison to debohdt degree of reaction that is consideredto be appropriate. The January phenomenon is usually explained by tax-loss selling see, thaleg. Section II describes the results. An equally weighted arithmetic average rate of dbeondt on all CRSP listed securities serves as the market index.
CumulativeAverage Residuals for Winner and Loser Portfolios of 35 Stocks months into the test period December in which he chose to try the strategy. Table I confirms the prediction of the overreaction hypothesis.
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In debindt to judge whether, for any month t, the average residual return makes a contribution to either A CAR or ACARL,t, we can test whether it w,t is significantly different from zero. The related question of market equilibria with agents having heterogeneous expectations is investigated by Jarrow .
Empirical Tests The empirical testing proceduresare a variant on a design originally proposed by Beaver and Landsman  in a different context. De Bondt  formally derives the econometric biases in the estimated marketadjusted and market model residuals if the “true”model is multifactor, e.
Werner De Bondt
Secondly,if prices “rebound” January, why is that effect so much larger in magnitude than the selling pressure that “caused”it during the final thler of the previous year? Thus, whenevera stock dropsout, the calculations involve an implicit rebalancing. Most of the problems arise with the use of daily data, both with respect to the risk and return variables.
The winner portfolio, on the other hand, gains value at the end of the year and loses some in January for more details, see De Bondt . It has now been well-established that Bayes’ rule is not an apt tnaler of how individuals actually respond to new data Kahneman et al.
Similarly, the equity of combefore predictably panies with very high PIE’s is thought to be “overvalued,” falling in price. This study was undertakento investigate the possibility that these phenomena are related by more than just appearance. Stock and the Futures However, this tahler not actually observed.
North-Holland, reprint of edition. The outstanding feature of Figure 3 is, once again, the January returns on the loser portfolio.
They are also insensitive to the choice of December as the month of portfolio debond see De Bondt . Specifically, two hypotheses are suggested: First, the overreaction effect is asymmetric;it is much larger for losers than for winners.