Short-term overreaction to specific events: Evidence from an emerging market |
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Institution: | 1. Department of Finance, Eller College of Management, University of Arizona, Tucson, AZ 85721, United States;2. Accounting and Finance Department, College of Management, University of Massachusetts Boston, Boston, MA 02125, United States;3. Department of Finance, College of Business and Economics, West Virginia University, 1601 University Ave., Morgantown, WV 26506, United States;1. Department of Management Sciences, Tamkang University, Taiwan, ROC;2. Department of International Business, Soochow University, Taiwan, ROC |
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Abstract: | This paper investigates the short-term overreaction to specific events and whether stock prices are predictable in the Egyptian stock exchange (EGX). We find evidence of the short-term overreaction in the EGX. Losers (“bad news” portfolios) significantly outperform winners (“good news” portfolios) and investors can earn abnormal return by selling the winners and buying losers. Terrorist attacks have negative and significant abnormal returns for three days post event followed by price reversals on day four post event. Whereas, the tensions in the Middle East region have a negative and significant abnormal returns on event day followed by price reversals on day one post event. Moreover, the formation of a new government has no effect on the average abnormal returns post event in the EGX. The results also show that small firms tend to have greater price reversals compared to large firms. Overall, our results provide evidence of the leakage of information in the EGX. |
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Keywords: | Overreaction hypothesis Price reversal Emerging markets |
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