Testing overreaction hypothesis for different times in BIST

Behavioral finance examines people's economic and financial decisions, assuming that people are not always rational, and as a result, the decisions they make cannot always be the best ones. According to the overreaction hypothesis examined under the behavioral finance discipline, stocks that yield low returns for one period yield higher than normal returns in the following period, while stocks that yield higher returns for one period yield lower returns in the following period. According to the overreaction hypothesis, markets are not effective in weak form. The purpose of this study is to examine the overreaction hypothesis, which is an important approach of behavioral finance, and to determine whether it exists in BIST. In the study carried out by examining the data of stocks that are traded continuously between January 2002 and December 2019 at BIST, the yield performances were analyzed by generating winning and losing portfolios for five, three, two, one year and six month periods. The results obtained after examining the portfolio creation and testing periods support the overreaction hypothesis. It seems possible to obtain an above-normal return by applying the strategy of selling the winning portfolio and buying the losing portfolio in BIST (contrast strategy).