Financial Quotient
What is overreaction?
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Zhang Weina and Ruth Tan
Overreaction in the financial market is said to occur if the market price moves upward too much after good news or moves downward too far after bad news. It is hard to identify overreaction until a subsequent price reversal is observed.
The most prevailing evidence of market overreaction is captured by a negative serial correlation in security prices. This means a positive price movement on one day is followed by a negative movement the next day.
