Overreaction Hypothesis and Reaction of Borsa Istanbul to Dow-Jones

Abstract

The aim of this study is to investigate whether or not there are any over-reactions to the positive and negative events of the Borsa Istanbul 100 index (BIST-100) in relation to the Dow Jones Industrial index (DJIA). The daily stock indexes between January 2010 and June 2016 are used in this research. The research finding showed that BIST-100 reacts in the same way as DJIA up to 3.31% and the reaction decreases and was lost between 30 and 60 days against the positive changes. In case of adverse events the BIST 100 shows abnormal decline in protecting the efficient market hypothesis is valid for 30 days after the event, however, the decline is reversed until the 60’th days when all losses are compensated. This terminates the validity of the efficient market hypothesis. This study shows that the BIST 100 index does not comply with the efficient market hypothesis and demonstrate the validity of the overreaction hypothesis. Study results include stock investments, whose findings will have an impact on portfolio management decisions of investors.

The Profitability of Contrarian Strategy: Borsa Istanbul Case

“…Tunçel (2013) supported the presence of overreaction hypothesis in Borsa Istanbul in an analysis conducted for the 1998-2012 period. Tetik and Özen (2016) noted in the study they conducted with daily data between January 2010 and June 2016 that BIST 100 index did not comply with the assumptions of the effective market hypothesis and the overreaction hypothesis isvalid.…”

Testing the overreaction hypothesis in the mexican stock market

“…Specific research regarding overreaction in emerging markets stand out the works recently delivered by, among others, by Tripathi and Gupta (2009); and Khatua and Pradhan (2014); and Tetik and Özen (2016). Examining whether or not overreaction is present in the Indian Stock Market, Tripathi and Gupta (2009) report the presence of a statistically significant but asymmetric overreaction for the period March 1996-March 2007, using monthly data series.…”

“…In conclusion, their research offers further knowledge about overreaction effects, which could enable investors to prepare trading strategies for higher returns. In turn, Tetik and Özen (2016) recently investigated the possible existence of over-reactions of the Istanbul 100 index (BIST-100) in relation to the Dow Jones Industrial Average Index (DJIA). The sample study included daily stock indexes comprising the period January 2010 and June 2016.…”

Exploring the Causal Linkage Between Foreign Equity Investments and BIST 100 Index

“…Determinants of foreign capital investments exist at the country, industry, and firm levels; they vary depending on factors such as financial development, financial liberalization, inflation rate, financial crises, investor sensitivity, interest rate, host country stock market performance, country credit rating exchange rates and US stock market returns (Singhania & Saini, 2018). It is natural for developing countries to be affected by developments in the leading global players such as the US economy and the New York Stock Exchange (Tetik & Özen, 2016). Another important factor is that the exchange rate is a very important determinant of FEI for developing countries.…”