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Statistical Approach to Stock Market Overreaction and Seasonality

  • Author(s): Hu, YuYan
  • Advisor(s): Schoenberg, Rick Paik
  • et al.
Abstract

In their study "Does the Stock Market Overreact?", Debondt and Thaler proposed the overreaction hypothesis, which states that if a stock experiences significant price movement, then a subsequent price movement in the opposite direction is likely to follow. Moreover, the level of extremeness is positively correlated between the initial and the following price movement. In this study we would adopt the similar algorithm, using the data of recent three decades to test the overreaction hypothesis. Besides, the study of overreaction has shed light to the research of "January Effect" in stock market. A linear regression model will be used to test the existence of "January Effect", by analyzing the stocks with greater losses

during a 5-year period.

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