Evaluation of Shareholders’ Overreaction and its Comparison in Small and Large Companies (Case Study: Accepted Companies in Tehran Stock Exchange)

Document Type : Original Article

Authors

1 Assistant Prof. Faculty of Economic and Management, Semnan University, Semnan, Iran,

2 MSc in in Business Management, Semnan University, Semnan, Iran.

Abstract

Overreaction is one of the anomalies in stock market that has a destructive effect on market efficiency. The purpose of this article is to assess the overreaction of shareholders and comparison this phenomenon in small and large companies in Tehran stock exchange. Also, in this research we evaluate the performance of contrarian investment strategy to achieve abnormal returns. The study period was from 1382 to 1396. We used the De Bondt-Thaler winner–loser effect method to assessing the overreaction phenomena. The results showed that an overreaction exists among the shareholders of Tehran stock exchange. Also, the overreaction has been observed among the shareholders of large companies; but it hasn’t been observed among the shareholders of small companies. Generally, investors and portfolio managers can take advantage of market inefficiencies and to achieve abnormal returns by following a contrarian strategy in Tehran stock exchange.

Keywords


  1. Abdo, T. H., Damoory, D.(2003). Identification the Factors Affecting Long-Term Returns of IPO s in Tehran Stock Exchange. Financial Research Journal. 15, 20-50 ( in Persian).
  2. Ahmad, Z. & Hussain, S. (2001). Kuala Lumpur Stock Exchange Long Run Overreaction and the Chinese New Year Effect. Journal of Finance & Accounting, 28 (1-2), 63-105.
  3. Antoniou, A., Galariotis, E. C. & Spyrou, S. I. (2005). Contrarian Profits and the Overreaction Hypothesis: the Case of the Athens Stock Exchange. European Financial Management, 11 (1), 71-98.
  4. Assefa, T. A., Esqueda, O. & Galariotis, E. (2014). Overreaction Evidence from Large-Cap Stocks. Review of Accounting and Finance, 13 (4), 310–325.
  5. Boubaker, S., Farag, H. & Nguyen, D. K. (2015). Short-Term Overreaction to Speciï‌c Events: Evidence from an Emerging Market. Research in International Business and Finance, 35, 153-165.
  6. Clements, A., Drew, M. E., Reedman, E. M. & Veeraraghavan, M. (2009). The Death of the Overreaction Anomaly? A Multifactor Explanation of the Contrarian Returns. Investment Management and Financial Innovations, 6 (1), 76-85.
  7. Dai. J. (2012). Testing Overreaction and Under-reaction in the Commodity Futures Market. Dissertations and Theses Collection (Open Access). Retrieved from http://ink.library.smu.edu.sg/etd_coll/89.
  8. De Bondt, W. F. M. & Thaler, R. H. (1985). Does the Stock Market Overreact? Journal of Finance, 40 (3), 793–808
  9. De Bondt, W. F. M. & Thaler, R. H. (1987). Further Evidence on Investor Overreaction and Stock Market Seasonality. The Journal of Finance, 42 (3), 557 – 581.
  10. Eslami, B. GH, Talebi, A.R. (2010). Investigating the Effect of Factors Affecting the Overreaction of Stockholders in Tehran Stock Exchange. Journal of Scientist Behavior, 44, 461-476 ( in Persian).
  11. Galariotis, E. C., Holmes, P. & Ma, X. S. (2007). Contrarian and Momentum Profitability Revisited: Evidence from the London Stock Exchange 1964-2005. Journal of Multinational Financial Management, 17 (5), 432- 447.
  12. Ghalibaf, A. H., Naderi. M. (2006). The Evaluation Investor Overrection to Announcement in Bear & Bull Market ON the Tehran Stock Exchange. . Financial Research Journal.7(21), 97-112 ( in Persian).
  13. Jegadeesh, N. & Titman, S. (1993). Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. Journal of Finance, 48 (1), 65-91.
  14. Khatua, S. & Pradhan, H. K. (2014). Examining Overreaction in Indian Stock Market for Quarterly News. Emerging Markets Journal, 4 (1), 1-16.
  15. Khalili, A. M., Esmaeeli, B.(2014). Investigating the Effect of Factors Affecting Short-Term Reactions in IPO of Tehran Stock Exchange. Journal of Investment Knowledge, 11, 47-64( in Persian).
  16. Lin, H., Zi – Jun, Sh., Xiu – Yi, L. & Wen – Jun, Ch. (2013). An Empirical Study on the Overreaction of Shanghai Stock Market. Chinese Studies, 2 (1), 32-35.
  17. Liu, D., Gu, H. & Xing, T. (2016). The Meltdown of the Chinese Equity Market in the summer of 2015. International Review of Economics and Finance, 45, 504-517.
  18. Malkiel, B. G. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17 (1), 59-82.
  19. Michel, J. S. (2014). Stock Market Overreaction to Management Earnings Forecasts. Working paper.
  20. Moradi, M., Salehi, M. & Hasanzadehnamaghi, A. (2011). An Evaluation of Investors Overreaction to Past Financial Function Criteria: Iranian Evidence. Journal of Business Management, 5 (15), 6103-6109.
  21. Moeenuddin. M., Nayeb. Z. SH., Zare. M. R. Fazel. Y. A.(2013).Investigating the Effectiveness of Reverse Investment Strategy for Earning and Sensitivity Analysis of Financial Indices Using Tukey's Test in Tehran Stock Exchange. Financial knowledge of securities analysis Journal.18. 49-69 (in Persian).
  22. Mylonakis, J. (2012). An Investigation of the Efficiency of Portfolio Investors Behavior. Athens Greece-International Journal of Business and Social Science, 3 (6), 93-117.
  23. Nikbakht, M.R., Moradi, M.(2005). Evaluation of Overreaction of shareholders in Tehran Stock Exchange. Journal of Accounting and Auditing Review. 40. 97-122 ( in Persian).
  24. Nikomaram. H., Saeedi. A., Rahnamae. R. F., Madanchi. Z. M. (2015). The Rate of Price Adjustment of Securities as a Method for Assessing the Overreaction and Underreaction of Investors and Efficiency of Financial markets: approaches, models and results. . Journal of Investment Knowledge. 14. 95-124 ( in Persian).
  25. Norli, A., Annuar Md, N., Taufiq, H. & Sazali, Z. A. (2009). Does Bursa Malaysia Overreaction? International Research Journal of Finance and Economics, (34), 175-193.
  26. einganum, M. R. (1983). The Anomalous Stock Market Behavior of Small Firms in January: Empirical Tests for Tax-Loss Selling Effects. Joumal of Financial Economics, 12 (1), 89-104.
  27. Pedro Piccoli, Mo Chaudury, Alceu Souza, Wesley da Silva (2017). Stock overreaction to extreme market events. The North American Journal of Economics and Finance, Vol 41, 97-111.
  28. Saeedi, A. Farhanian. S.M.J.(2011). Fundamental of Behavioral Economics & Finance, Tehran, Bourse Publications ( in Persian).
  29. Saleh, W. (2007). Overreaction: the sensitivity of defining the duration of the formation period. Applied Financial Economics, 17 (1), 45-61.
  30. Tibebe Abebe Assefa, Omar A. Esqueda, Emilios C. Galariotis. (2014). Overreaction evidence from large-cap stocks. Review of Accounting and Finance, Vol. 13 Iss 4 pp. 310 – 325.
  31. Zarowin, P. (1990). Size, seasonality and stock market overreaction. Journal of Financial and Quantitative Analysis, Vol. 25 No. 1, pp. 113-125.