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Further Evidence on Investor Overreaction and Stock Market Seasonality

Werner F. M. De Bondt and Richard H. Thaler
The Journal of Finance
Vol. 42, No. 3, Papers and Proceedings of the Forty-Fifth Annual Meeting of the American Finance Association, New Orleans, Louisiana, December 28-30, 1986 (Jul., 1987), pp. 557-581
Published by: Wiley for the American Finance Association
DOI: 10.2307/2328371
Stable URL: http://www.jstor.org/stable/2328371
Page Count: 25
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Further Evidence on Investor Overreaction and Stock Market Seasonality
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Abstract

In a previous paper, we found systematic price reversals for stocks that experience extreme long-term gains or losses: Past losers significantly outperform past winners. We interpreted this finding as consistent with the behavioral hypothesis of investor overreaction. In this follow-up paper, additional evidence is reported that supports the overreaction hypothesis and that is inconsistent with two alternative hypotheses based on firm size and differences in risk, as measured by CAPM-betas. The seasonal pattern of returns is also examined. Excess returns in January are related to both short-term and long-term past performance, as well as to the previous year market return.

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