The test of the togetherness of overreacting and price/return ratio anomalies: An example from Borsa Istanbul

In this study, we tested whether it is possible to beat Istanbul Borsa by using the expectation of operation strategies separately and together from price/earning ratio and over reacting anomalies. We used the data between January 01,2002 and December 31, 2011 and created 1 year portfolios by using the expectation of operation strategies from price/earning ratio and over reacting anomalies. This empirical study shows that the FK5 portfolio created from the lowest price/earning ratio between January 01, 2002 and December 31, 2011 achieves a 9% higher average cumulative abnormal return than the FK1 portfolio created from the highest price/earning ratio between January 01, 2002 and December 31, 2011. When we invest by following the strategy of over reacting hypothesis, the looser portfolio achieves a 11% higher return than the winner portfolio. However, this number is not statistically significant. To test the two anomalies? togetherness, we created FK5-losser portfolio and FK1-winner portfolio. Then, we saw that FK5-looser portfolio has an 8% higher average cumulative abnormal return. We found that there is a price/earning anomaly as it was found in the previous studies. However, this study showed that there is no overreacting anomalies in the 1 year term. Even if we got some reasonable results from the portfolios created by using the two anomalies together, these portfolios did not give a better result than the portfolios created from price/earning ratio. Keywords: Anomali, price/earnings, overreactıon, efficient markets