Author(s): Júlio Lobão ; Maria Eva Jerke
Date: 2020
Persistent ID: https://hdl.handle.net/10216/131202
Origin: Repositório Aberto da Universidade do Porto
Subject(s): Ciência financeira, Economia e gestão; Financial science, Economics and Business; Ciência financeira, Economia e gestão; Ciência financeira, Economia e gestão; Financial science, Economics and Business; Financial science, Economics and Business
In this paper we examine for the first time the short-term predictability of American Depository Receipts (ADRs) in reaction to extreme price movements. Based on an analysis of 2,911 extreme price movements that took place within either normal trading hours or after-hours in the period 2001-2019, we conclude that those extreme returns were on average followed by significant reversals. This response represents an overreaction in prices, which challenges the weak version of the efficient market hypothesis. Price reversals are especially pronounced following extreme returns observed during after-hours, which lends support to the assertion that ADR markets are particularly inefficient during this trading period. These findings carry important implications for both market practitioners and regulators.
