Stock Market Overreaction and Fundamental Valuation

Does the stock market overreact? Recent capital market turbulences have cast doubt whether the behaviour of stock markets is in line with rational investor behaviour. This book investigates recent evidence of reversals in the cross section of stock returns. The surprising finding of this monograph is that reversals in stock returns are parallelled by movements in fundamentals. Outperformance in the stock market is driven by outperformance in corporate earnings. This monograph analyses this effect and provides background reasoning both from a theoretical and form an empirical point of view. The reader will pursue the question whether capital markets are efficient and thereby obtain a deeper understanding of the relationship between stock returns and underlying fundamentals.
TOC: Introduction.- The Winner-Loser Effect: Literature.- Emprirical Evidence for Germany.- Explaining the Winner-Loser Effect: CAPM versus Fundamentals: Explaining the Winner-Loser Effect: Theory.- The CAPM and the Winner-Loser Effect.- Fundamentals and the Winner-Loser Effect.- Fundamentals versus Beta - What Drives Stock Returns?.- Explaining Cycles in Fundamentals: Reversals in Stock Returns and Temporary Problems of Corporate Control.- Conclusion.- References.- Author Index.- Index