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Continuing Overreaction and Stock Return Predictability

Published online by Cambridge University Press:  29 December 2016

Suk Joon Byun ,
Sonya S. Lim  and
Sang Hyun Yun
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Abstract

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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 6 , December 2016 , pp. 2015 - 2046
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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