Examining Investor Overreaction in Periods of Crisis

Abstract

This study tests whether the 2022 event has increased investor overreactions in the capital markets of eight Central and Eastern European countries (Romania, Bulgaria, Slovakia, Hungary, Croatia, Russia, the Czech Republic, and Slovenia). This chapter contributes to the existing literature on overreaction behavior in Central and Eastern European capital markets by introducing a new modeling technique that does not require specific threshold parameters. Instead, the analysis models the price overreaction as a price change based on 16-day lags. This approach differs from previous research that used statistical modeling of overreactions, selecting one or more arbitrary parameters. The research question is partially accepted since some studied regional markets show overreactions (4 out of 8 possible markets).