Return reversals in the Tokyo Stock Exchange: A test of stock market overreaction

P. S.M. Gunaratne*, Y. Yonesawa

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

18 Citations (Scopus)


Some authors attribute the extreme movements in stock returns to market overreaction. In this paper, we examine this controversial hypothesis in the Tokyo Stock Exchange through portfolios formed on the basis of previous four-year returns. We find that the extreme losers outperform the extreme winners by 11% per annum in terms of risk-adjusted abnormal returns during the subsequent period. It is controversial whether these abnormal returns are due to overreaction by the investor. However, our evidence suggests that this is an independent phenomenon from monthly seasonal stock returns. It has also been a frequent phenomenon with some ups and downs along the way in the market during our sampling period from 1955 to 1990.

Original languageEnglish
Pages (from-to)363-384
Number of pages22
JournalJapan and The World Economy
Issue number3
Publication statusPublished - 1997 Aug
Externally publishedYes


  • Abnormal returns
  • Japan
  • Overreaction
  • Return reversals
  • Tokyo Stock Exchange

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics
  • Political Science and International Relations


Dive into the research topics of 'Return reversals in the Tokyo Stock Exchange: A test of stock market overreaction'. Together they form a unique fingerprint.

Cite this