Do the prices of stock index futures in Asia overreact to U.S. market returns?

Alexander K W FUNG*, Kin Lam, Ka Ming Lam

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

20 Citations (Scopus)

Abstract

We extend the overreaction study to interaction of international markets and find that intraday price reversals exist in Asian index futures markets following extreme movement in U.S. market. Profitable opportunities exist after considering transaction cost. We show that the reversal cannot be explained by rational arguments such as risk, liquidity and bid-ask spread. We further observe that a magnitude effect exists. Overreaction is more prominent in the latter period than in the initial period. After calm-down periods, overreaction is greatly reduced. These observations support the explanation that the source of price reversals lies in behavioral biases.

Original languageEnglish
Pages (from-to)428-440
Number of pages13
JournalJournal of Empirical Finance
Volume17
Issue number3
DOIs
Publication statusPublished - Jun 2010

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

  • Asian futures markets
  • Behavioral finance
  • G14
  • G15
  • International finance
  • Investors' sentiment
  • Overreaction

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