Abstract:
This paper is an attempt to revisit the overreaction effect studied in the past and explore if such effects have any linkages with specific news events. According to overreaction effect, there is tendency for loser stocks in one period to become winners in the next period and vice-versa and thus providing possibilities for predictability of stock price movement. Early research on overreaction was focused more from long term perspective and later on relatively shorter terms as well, but not much attention has been given to specific information. Now, because of aggressive media coverage on various global events relevant to stock market, there is a tendency for market participants to get affected by the news sentiment enticing them to take some decision. So, in such environment possibility of occurrence of overreaction is high and opportunities exist for contrarian strategies to generate above normal returns. This paper thus forms a basis for future research to test whether news sentiment generated by specific news leads to overreaction in stock prices.
