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Overreaction in the Financial Times Stock Exchange (FTSE)

By Yusuke Ewan Tanaka Legard

The Overreaction Hypothesis suggests that investors overreact to unexpected news in the financial world, which leads to a mispricing of equities. This paper investigates the presence of overreaction in the Financial Times Stock Exchange (FTSE) between 1995 and 2018. The empirical methodology studies the monthly returns of equities in the FTSE 100. The empirical results are consistent with the overreaction hypothesis and indicate the presence of overreaction within the FTSE. Furthermore, the results highlight whether the information revolution has exacerbated or lessened overreaction. The results suggest that investor overreaction has not altered, for better or worse, since the information revolution.

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Advisors: Professor Emma Rasiel, Professor Kent Kimbrough | JEL Codes: E7; E70; D83

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