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Primary Article

Overreaction and Trading Strategies in European iShares

David P. Simon and Joel S. Sternberg
The Journal of Alternative Investments Summer 2005, 8 (1) 29-41; DOI: https://doi.org/10.3905/jai.2005.523081
David P. Simon
An associate professor of finance and Stanton Professor of Finance at Bentley College in Waltham, MA.
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  • For correspondence: dsimon@bentley.edu
Joel S. Sternberg
An assistant professor of finance in the Graduate School of Management at Clark University in Worcester, MA.
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  • For correspondence: jsternberg@clarku.edu
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Abstract

This article examines the forecasting power of German, U.K. and French iShares for the next day returns of the underlying Morgan Stanley country equity indexes and assesses whether European iShares overreact to developments after the close of European trading. The findings indicate that although deviations of European iShare prices from net asset values (NAVs) at the close of U.S. trading have significant forecast power for next day NAV returns, they overpredict. Deviations of closing iShare prices from their NAVs also lead to next day iShare price reversals that average roughly 3/8 of the size of the deviations. Finally, the article demonstrates the profitability of trading rules that exploit the tendency of European iShares to overreact to late day U.S. trading activity.

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The Journal of Alternative Investments
Vol. 8, Issue 1
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Overreaction and Trading Strategies in European iShares
David P. Simon, Joel S. Sternberg
The Journal of Alternative Investments Jun 2005, 8 (1) 29-41; DOI: 10.3905/jai.2005.523081

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Overreaction and Trading Strategies in European iShares
David P. Simon, Joel S. Sternberg
The Journal of Alternative Investments Jun 2005, 8 (1) 29-41; DOI: 10.3905/jai.2005.523081
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