Market anomalies and examination of overreaction hypothesis on ISE

This thesis has been constructed to make a study of the Overreaction Hypothesis which is a sub-title of the behavioral finance and contradicts with the Efficient Markets Hypothesis. In this context, firstly the Efficient Market Hypothesis which is supported by Fama (1970) and types of it are mentioned, than the behavioral finance theories and the anomalies that are contradictory to the market efficiency are elaborated. In the next chapter Overreaction Hypothesis and literature on this subject are explained. In the last chapter of the thesis the validity of the Overreaction Hypothesis and whether the contrarian investment strategy is useful to earn supernormal returns in five different indexes of ISE (ISE 100, ISE 50, ISE 30, ISE Financial and ISE Industrial), are examined.In the examination process of the overreaction, the method of DeBondt and Thaler (1985) was modified and created one year of portfolio formation and test periods. The monthly returns of the stocks which are traded continuously in ISE 100, ISE 50, ISE 30, ISE Financial and ISE Industrial indexes, between July 1998 and June 2008 are chosen as the sample.In conclusion of the analysis, proofs which support Overreaction Hypothesis and the effectiveness of the contrarian strategies were found in all indexes except ISE 30 Index. This may indicate that ISE is not weak form efficient. Out of the results of the ISE 30 Index, remaining results are supported by the literature. And lastly it has been displayed, in the test period the size of the transformation of the loser portfolio that had lost in the previous period, is bigger than the winner portfolio.