AN ANALYSIS OF INVESTORS’ BEHAVIOR
IN THE ROMANIAN CAPITAL MARKET
25/2008 , p25..50
Author(s):
Anamaria CIOBANU
Seyed MEHDIAN
Mark J. PERRY
Keywords:
Romanian capital market, investors’ behavior, efficient market hypothesis, overreaction hypothesis, uncertain information hypothesis
Abstract:
In this paper, we examine investor reaction to the arrival of unexpected political and economic induced information in the Romanian equity market in a crucial era after a major transformation of the Romanian economy, the reopening of Romania’s stock market in 1995 after 50 years of being closed, and the execution of several financial reform programs. Daily stock market returns from two major indexes (BET and BET-C) are employed to analyze the behavior of investors in the framework of three competing hypotheses: The Overreaction Hypothesis (OH), the Uncertain Information Hypothesis (UIH), and the Efficient Market Hypothesis (EMH). The findings suggest evidence of significant price reversals following the arrival of both favorable and unfavorable price innovations in the narrow BET index, as predicted by the OH. The implication of this result is that investors can exploit contrarian strategies to generate abnormal returns for the underlying stocks of the BET. However, for the BET-C a corrective trend of positive returns following the arrival of favorable shocks was documented, a result consistent with the prediction of the UIH. It follows that Romanian investors who participate in the broader BET-C composite index systematically place security prices below their fundamental values in reaction to the arrival of unexpected favorable economic and political news. The pattern of cumulative abnormal returns in the BET-C following the arrival of unexpected negative news is consistent with the EMH.
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http://online-cig.ase.ro/jcig/art/File533.pdf
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