Overreaction Analysis In State-Owned Equities

George Bakos, George Petrakos
2017 Asian Economic and Financial Review  
This paper challenges the research hypothesis that psychological factors and market sentiment can influence and alter the trajectory of state-owned equities. For this purpose, an overreaction analysis was performed in a wide data spectrum consisting of daily returns of 184 state-owned enterprises operating in countries from three continents, over a ten year period divided in five biannual test periods. Portfolio separation and Cumulative Abnormal Returns generated no evidence towards the
more » ... towards the existence of overreaction phenomena across all test-periods. Average and Median Cumulative Abnormal Returns, tested with parametric and nonparametric statistical analysis, did not exhibit reversal patterns in the behavior of loser and winner portfolios, thus neutralizing the possibility of earlier overreaction in the state-owned stocks under study. The outcome concerning state-owned enterprises contrasts with the corresponding research hypothesis and outcomes in the literature regarding behavioral economics and overreaction effects in private enterprises. Contribution/ Originality This study contributes in the theoretical and empirical investigation of the differences and similarities between state and private owned companies regarding reversal patterns in their stock behavior and overreaction phenomena. It presents and analyzes the results of an empirical survey addressing a wide data spectrum consisting of daily returns of 184 state-owned enterprises operating in countries from three continents, over a ten year period. Statistical methodology, commonly used in the literature of behavioral economics in the private sector, is applied here in order to provide inference for the public sector as well. and trends can be viewed as results of the rational investment thinking and careful analysis of all available and relevant data. Recently, many researchers have challenged the core principles of the Efficient Market Hypothesis and the modern neoclassical "faultless" description of the markets. Bayes' rule violations noted by Kahneman and Tversky (1977) ; Schiller (1981) argument of irrational disagreement in dividends variation compared to aggregate stock volatility and Basu (1977) price-earnings ratio anomaly noted as P/E ratio discordance to future stock returns
doi:10.18488/journal.aefr/2017.7.3/102.3.267.278 fatcat:2vsdgza36bfupmxfxk4h7fd7l4