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Size, Seasonality, and Stock Market Overreaction

Published online by Cambridge University Press:  06 April 2009

Paul Zarowin
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Abstract

Recent research finds that the prior period's worst stock return performers (losers) outperform the prior period's best return performers (winners) in the subsequent period. This potential violation of the efficient markets hypothesis is labeled the “overreaction” phenomenon. This paper shows that the tendency for losers to outperform winners is not due to investor overreaction, but to the tendency for losers to be smaller-sized firms than winners. When losers are compared to winners of equal size, there is little evidence of any return discrepancy, and in periods when winners are smaller than losers, winners outperform losers.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 25 , Issue 1 , March 1990 , pp. 113 - 125
Copyright
Copyright © School of Business Administration, University of Washington 1990

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