Business Commons^™

Investor Reaction In Stock Market Crashes And Post-Crash Market Reversals., Daniel Folkinshteyn, Gulser Meric, Ilhan Meric

Rohrer College of Business Faculty Scholarship

We study investor overreaction using data for five major stock market crashes during the 1987-2008 period. We find some evidence of investor overreaction in all five stock market crashes. The prices of stocks investors bid down more than the average during crashes tend to increase more than the average in post-crash market reversals. In line with CAPM, we find that high beta stocks lose more value in crashes and gain more value in post-crash market reversals relative to low beta stocks. We further find that smaller firms and those with a low market-to-book ratio lose more value in stock market …