WINNERS AND LOSERS ON NYSE: A RE‐EXAMINATION USING DAILY CLOSING BID‐ASK SPREADS

Aigbe Akhigbe · Thomas F. Gosnell · T. Harikumar

31 citations0/0 files storedThe Journal of Financial Research

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Stock Market Forecasting Methods

Abstract

Abstract We study a sample of NYSE stocks that experienced a large one‐day price change during 1992 and were reported as daily largest percentage gainers and largest percentage losers in the Wall Street Journal. The sample indicates significant reversals during the immediate post‐announcement period. We test for market efficiency by using bid‐ask spreads obtained from the transactions data for the days immediately after the announcement. The overall results indicate that the returns during the reversal period are less than the average bid‐ask spread during the same time. We also find that major losers, firms with −20 percent to −50 percent event‐date abnormal returns, experience price reversals generating returns that are significantly greater than the average bid‐ask spread during that period. We interpret this result as consistent with the overreaction hypothesis. A test of a trading rule to exploit this overreaction is not profitable, providing support for weak‐form market efficiency.

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References

1985Does the Stock Market Overreact?1987Further Evidence On Investor Overreaction and Stock Market Seasonality 1984A Further Investigation of the Weekend Effect in Stock Returns 1986A transaction data study of weekly and intradaily patterns in stock returns 1994Stock Returns Following Large One-Day Declines: Evidence on Short-Term Reversals and Longer-Term Performance 1990Price Reversals, Bid-Ask Spreads, and Market Efficiency 1987Anomalies: Seasonal Movements in Security Prices II: Weekend, Holiday, Turn of the Month, and Intraday Effects 1995A Market Microstructure Explanation for Predictable Variations in Stock Returns following Large Price Changes

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