Reactions to Shocks of the Romanian Companies Stock Prices

In the recent context, capital markets are often affected by extreme events which generate sharp changes to the stock prices. According to the Efficient Market Hypothesis, all the information that causes such shocks is incorporated in the same day in stock prices. However, empirical researches revealed situations in which the reactions of stock prices to shocks lasted for many days. In this paper we investigate the reactions to shocks of the stock prices of 14 companies from the first tier of the Bucharest Stock Exchange. We employ daily values of their closing stock prices between 2000 and 2012. In order to capture the impact of market instability we split this sample of data into two sub-samples: a relative quiet period from 2000 to 2006 and a more turbulent period from 2007 to 2012. We identify positive and negative shocks and we quantify the stock prices reactions to these sharp changes. The results indicate that turbulence of the capital market stimulated underreactions to the negative shocks