OVERREACTION IN THE BRAZILIAN STOCK-MARKET

The overreaction hypothesis on a new set of data for the Brazilian stock market over the period 1970-1989 is investigated. Both market adjusted returns and the standard Sharpe-Lintner CAPM adjusted returns are used. Price reversals in 2-year returns are detected and the results contrast with the U.S. evidence in that the magnitude of the effect is more pronounced than in the U.S. The results also suggest that differences in risk, as measured by CAPM-betas using the method suggested by Chan (Chan, K.C., 1988, On the contrarian investment strategy, Journal of Business 61, 147-163), cannot account for the overreaction effect. I also examine the issue of asymmetry versus symmetry in the overreaction effect. Using the criterion proposed by Dissanaike (Dissanaike, G., 1992, Are stock price reversals really symmetric? University of Cambridge Department of Applied Economics Discussion Paper, AF series, No. 4) I find evidence that the price reversals are asymmetric.