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Size, Seasonality, and Stock Market Overreaction
The Journal of Financial and Quantitative Analysis
Vol. 25, No. 1 (Mar., 1990), pp. 113-125
Published by: Cambridge University Press on behalf of the University of Washington School of Business Administration
Stable URL: http://www.jstor.org/stable/2330891
Page Count: 13
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Recent research finds that the prior period's worst stock return performers (losers) outperform the prior period's best return performers (winners) in the subsequent period. This potential violation of the efficient markets hypothesis is labeled the "overreaction" phenomenon. This paper shows that the tendency for losers to outperform winners is not due to investor overreaction, but to the tendency for losers to be smaller-sized firms than winners. When losers are compared to winners of equal size, there is little evidence of any return discrepancy, and in periods when winners are smaller than losers, winners outperform losers.
The Journal of Financial and Quantitative Analysis © 1990 University of Washington School of Business Administration