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http://dx.doi.org/10.13106/jafeb.2021.vol8.no10.0219

Stock Market Behavior after Large Price Changes and Winner-Loser Effect: Empirical Evidence from Pakistan  

RASHEED, Muhammad Sahid (Noon School of Business, University of Sardogha)
SHEIKH, Muhammad Fayyaz (Lyallpur Business School, Government College University Faisalabad)
SULTAN, Jahanzaib (Lyallpur Business School, Government College University Faisalabad)
ALI, Qamar (Lyallpur Business School, Government College University Faisalabad)
BHUTTA, Aamir Inam (Lyallpur Business School, Government College University Faisalabad)
Publication Information
The Journal of Asian Finance, Economics and Business / v.8, no.10, 2021 , pp. 219-228 More about this Journal
Abstract
The study examines the behavior of stock prices after large price changes. It further examines the effect of firm size on stock returns, and the presence of the disposition effect. The study employs the event study methodology using daily price data from Pakistan Stock Exchange (PSX) for the period January 2001 to July 2012. Furthermore, to examine the factors that explain stock price behavior after large price movements, the study employs a two-way fixed-effect model that allows for the analysis of unobservable company and time fixed effects that explain market reversals or continuation. The findings suggest that winners perform better than losers after experiencing large price shocks thus showing a momentum behavior. In addition, the winners remain the winner, while the losers continue to lose more. This suggests that most of the investors in PSX behave rationally. Further, the study finds no evidence of disposition effect in PSX. The investors underreact to new information and the prices continue to move in the direction of initial change. The pooled regression estimates show that firm size is positively related to post-event abnormal returns while the fixed-effect model reveals the presence of unobservable firm-specific and time-specific effects that account for price continuation.
Keywords
Market Efficiency; Price Momentum; Market Reversal; Disposition Effect; Event Study;
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