Continuing Overreaction and Stock Return Predictability

We study the return predictability of a measure of continuing overreaction based on the weighted average of signed volumes. We find that the strategies of buying stocks with upward continuing overreaction and selling stocks with downward continuing overreaction generate significant positive returns...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2016-12, Vol.51 (6), p.2015-2046
Main Authors: Byun, Suk Joon, Lim, Sonya S., Yun, Sang Hyun
Format: Article
Language:English
Subjects:
Investors
Rates of return
Stocks
Studies
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Summary:We study the return predictability of a measure of continuing overreaction based on the weighted average of signed volumes. We find that the strategies of buying stocks with upward continuing overreaction and selling stocks with downward continuing overreaction generate significant positive returns and that our measure of continuing overreaction is a better predictor of future returns than past returns. The results are stronger among stocks primarily held by investors more prone to biased self-attribution. Our results provide direct support for the model of return predictability based on overconfidence and biased self-attribution.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109016000594