Overreaction & Under reaction: Evaluating performance and Speed of Adjustment Investment Strategies in Tehran Stock Exchange (TSE)

Document Type : Original Article

Authors

1 Ph.D. Candidate, Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran

2 Faculty Member, Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran (Corresponding Author)

3 Faculty Member, Department of Management, North-Tehran Branch, Islamic Azad University, Tehran, Iran

Abstract

In this research, overreaction and underreaction have been studied by assessing profitability and excess returns of investment strategies and evaluating price adjustment speed in short and long terms. The results showed that the momentum investment strategies had higher annual returns in comparison to contrarian strategies in all short and long periods which led to confirmation of underreaction phenomenon and rejection of overreaction. The small size and value portfolios had higher significant returns. The highest current price to 52-week high ratio portfolios had higher returns than the lowest portfolios in short and long term periods, which is an evidence of momentum and underreaction phenomenon in the market. In addition, the speed of investment strategies adjustment to market-wide information was assessed using Dimson Beta regression and some evidences of the underreaction in short term and overreaction in long term were confirmed. The influence of winner and loser portfolio formation and holding months was observed.

Keywords

References

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International Journal of Finance & Managerial Accounting
Volume 2, Issue 6
August 2017
Pages 103-120

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