Stock index reaction to large price changes: Evidence from major Asian stock indexes

Khelifa Mazouz, Nathan Lael Joseph, Clement Palliere

Research output: Contribution to journalArticle

15 Citations (Scopus)

Abstract

Abstract: We examine the short-term price behavior of ten Asian stock market indexes following large price changes or "shocks". Under the standard OLS regression, there is stronger support for return continuations particularly following positive and negative price shocks of less than 10% in absolute size. The results under the GJR-GARCH method provide stronger support for market efficiency, especially for large price shocks. For example, for the Hong Kong stock index, negative shocks of less than - 5% but more than - 10% generate a significant one day cumulative abnormal return (CAR) of - 0.754% under the OLS method, but an insignificant CAR of 0.022% under the GJR-GARCH. We find no support for the uncertainty information hypothesis. Furthermore, the CARs following the period after the Asian financial crisis adjust more quickly to price shocks. © 2008 Elsevier B.V. All rights reserved.
Original languageEnglish
Pages (from-to)444-459
Number of pages16
JournalPacific Basin Finance Journal
Volume17
Issue number4
Early online date17 Nov 2008
DOIs
Publication statusPublished - Sep 2009
Externally publishedYes

Keywords

  • Heteroscedasticity
  • Market efficiency
  • Overreaction
  • Return continuations
  • Uncertainty information hypothesis

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