Investor and market overreaction: a retrospective
ISSN: 1940-5979
Article publication date: 20 May 2020
Issue publication date: 3 June 2020
Abstract
Purpose
Are the capital markets of leading industrialized nations rational and efficient? This powerful hypothesis was badly dented by the work of De Bondt and Thaler (1985) on stock market overreaction and by subsequent research on momentum and reversals in prices and earnings.
Design/methodology/approach
Human psychology, at times predictably irrational, drives the markets. This paper investigates this issue.
Findings
The author reviews the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.
Originality/value
The paper reveals the origins of the idea of overreaction, how behavioral insights modify standard asset pricing theory and how they contribute to our understanding of the world of finance.
Keywords
Acknowledgements
The author is grateful to Professors Robert Hudson and Gulnur Muradoglu (the editors) for encouraging him to write this paper and to Richard H. Driehaus and Thomas F. Gleed for generous financial support.
Citation
De Bondt, W. (2020), "Investor and market overreaction: a retrospective", Review of Behavioral Finance, Vol. 12 No. 1, pp. 11-20. https://doi.org/10.1108/RBF-12-2019-0175
Publisher
:Emerald Publishing Limited
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