Financial behavior of investors : long-run overreaction phenomenon in Euronext stock exchange

The research investigates the long-run overreaction phenomenon in EURONEXT stock exchange. Data of EURONEXT stock exchange for the period of 2000-2017 were employed for the winner and the loser portfolio formation and systemic risk adjustment with the CAPM. Robustness was checked with t-test statistics. The empirical findings revealed long-run reversal effect wherein past long-run loser portfolios outperformed past long-run winner portfolio supporting the overreaction hypothesis with the exception for the period of financial turmoil. This overreaction was close to symmetric: positive average cumulative adjusted returns for the loser portfolio were similar to negative returns for the winner portfolio. Even though the findings supported long-run overreaction in EURONEXT stock exchange, this phenomenon was explained by the differences in risk. Jensen alpha was statistically insignificant, systemic risk of loser portfolio was higher than the one of winner portfolio. These results are consistent with the Efficient Market Hypothesis and the investors' rationality -- there was no possibility to apply the contrarian strategy for earning abnormal returns. Our research contributes to the existing literature providing further evidence on financial behavior in well-developed stock markets, and overreaction phenomenon during the global financial crisis of 2008–2009 (GFC).