Abstract

In this paper, whether The Overreaction Hypothesis is valid for Bourse Istanbul in the period of January 2000-May 2011 by using monthly returns of 146 stocks which have been contuniously traded in The National Market since 1998. The monthly returns of 146 securities was collected from The Bourse Istanbul's official web site. These 146 shares are ranked according to their systematic risk in descending order according to their systematic risks and equally weighted "portfolios of the highest systemic risk" are formed with 15 stocks which have top systematic risks. Similarly equally weighted "portfolios of lowest systemic risk" are formed with 15 stocks which have the lowest systematic risks.

Considering all of the test periods, the empirical results of the study shows that the monthly average abnormal return of "portfolios of the highest systematic risk" has reached to 0.810% from 3.017% with an decrease of 2.208%. Similarly, the average monthly cumulative abnormal return of the "portfolios of lowest systematic risk" has reached to 2.659% from 3.293% with a decrease of 0.634%. These findings show that more return can be achieved by investing in stocks which have low systematic risks.