Overreaction and Underreaction during the Covid-19 Pandemic in the South African Stock Market and Its Implications
Eurasian Journal of Business and Management
; 10(1):19-26, 2022.
Article
in English
| ProQuest Central | ID: covidwho-1876243
ABSTRACT
The aim of this study was to investigate overreaction and underreaction from the six main sectors in the Johannesburg stock exchange due to the significant impact of Covid-19 on economic activities and financial markets globally. Using a Threshold GARCH model, the findings revealed the presence of overreaction mostly in the healthcare, industrial and telecom sector. However, very few stocks in the banking and tech portrayed overreaction while none of the stocks in the consumer goods sector revealed the presence of overreaction or underreaction because the coefficient of the leverage term was statistically insignificant. From these findings, there is a high risk of investing in healthcare, industrial and telecom stocks, which is not compensated by additional returns. Investors can minimize risk in this sectors by adding healthcare, industrial and telecom stocks in a well- diversified portfolio and assigning a risk coefficient to their pricing. This study adds to the body of knowledge on market anomalies by looking at overreaction and underreaction during the coivid-19 pandemic, which is an important concept in behavioral finance. This study is significant to market participants that are willing to trade on the Johannesburg stock exchange as it provides valuable insights on behavioral pattern and anomalies.
Business And Economics--Management; Consumer goods; Investments; Economic crisis; Technology stocks; Central banks; COVID-19; Finance; Stock exchanges; Efficient markets; Health care; Market prices; Economic activity; Securities markets; Pandemics; Volatility; Behavioral economics; High risk; Stochastic models; Stock market; Banking; Coronaviruses; New stock market listings; United States--US; 52111:Monetary Authorities-Central Bank
Full text:
Available
Collection:
Databases of international organizations
Database:
ProQuest Central
Language:
English
Journal:
Eurasian Journal of Business and Management
Year:
2022
Document Type:
Article
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