| dc.description.abstract | Research in behavioral finance suggests that investors are prone to violate Bayes’
theorem and thus irrationally conform to various heuristics. This challenges the
Efficient Market Hypothesis and is reflected in the stock market through
overreactions and subsequent price reversals. Our thesis investigates whether
such overreactions are affecting stock prices in four Nordic stock markets and
sectors, and if such overreactions can be theoretically exploited through a
contrarian strategy; selling portfolios of prior winner stocks whilst
simultaneously buying portfolios of loser stocks. We also address critique
targeted at the Overreaction Hypothesis, such as the January effect. The
empirical proof from the Nordics is consistent with what the Overreaction
Hypothesis predicts; statistically significant stock price reversals are predictable
both on market- and sector level, exclusively based on historical return data,
suggesting a significant weak-form market inefficiency.
Keywords: Overreaction Hypothesis, Market Efficiency, Behavioral Finance,
Heuristics, Irrationality, Experimental Psychology. | nb_NO |
