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The Overreaction Hypothesis claims that investors systematically
overreact to extreme events and place too much emphasis on
relatively recent information. DeBondt The Overreaction
Hypothesis claims that investors systematically overreact to
extreme events and place too much emphasis on relatively recent
information. DeBondt and Thaler(1985) propose two hypothesis of
Overreaction : (1)Extreme movements in stock prices will be
followed by subsequent price movements in the opposite
direction. (2)The more extreme the initial price movements ,the
greater will be the subsequent adjustment. Both hypothesis imply
a violation of weak-form market efficiency.Brown ,Harlow and
Tinic propose the Uncertain Information Hypothesis in 1988. They
don''t consider that finical market is not efficient. They think
uncertainty among investors, following the arrival of unexpected
information leads to increased price volatility. So, the post-
event stock price response to a negative event will be positive
and response to a positive event will be at least nonnegative.
In the past, all the researches in Taiwan focus on the empirical
studies of the Overreaction Hypothesis. But not all of the
results conclude that overreaction exists in Taiwan. So, our
study adapt Brown''s research method to check the Taiwan''s stock
market behaviors. We choose 1991 to 1995 as our research period
and take 150 companies in Taiwan''s stock market as our samples.
Our conclusion list below:1. During 1991 to 1995, both of the
Overreaction and Uncertain Information Hypothesis can''t explain
the Taiwan''s stock market behavior reasonably.2. Firm size
effect and season effect seem to exist in the Taiwan''s stock
market.3. Events really make change in post-event systematic
risk. But some systematic risk of our companies samples will
alter permanently not temporally due to these surprise events.4.
There is a positive relationship between systematic risk and
return rate.
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