Abstract

This paper investigates whether the investors of Taiwan stock market overreact. The cumulative abnormal returns of winner portfolio and loser portfolio are calculated, and then I test, regression analysis and correlation analysis are adopted to test the overreaction hypothesis. The empirical evidence shows no overreaction in Taiwan stock market when risk factor and firm size are considered, respectedly. However, on the aspect of arbitrage strategies, the results indicate that no overreaction occurs among stocks issued by large and middle firms, while the investors of small firms are consistent with over-reaction phenomenon.