KLSE Long Run Overreaction and the Chinese New Year Effect

TLDR: In this paper, the authors investigated long run overreaction and seasonal effects for Malaysian stocks quoted on the Kuala Lumpur Stock Exchange (KLSE), for the period 1986-1996, and found that stocks exhibiting extreme returns relative to the market over a three year period experienced a reversal of fortunes during the following three years.

Abstract: This study investigates long run overreaction and seasonal effects for Malaysian stocks quoted on the Kuala Lumpur Stock Exchange (KLSE), for the period 1986–1996. Stocks exhibiting extreme returns relative to the market over a three year period experience a reversal of fortunes during the following three years. There is also evidence that employing a contrarian trading strategy may yield excess returns. Of particular interest is the apparent existence of a Chinese New Year effect in both the level of market returns, and the overreaction profile for KLSE stocks. These seasonalities mirror the January-effect observed in US markets.