Stock market overreaction and fundamental valuation

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Does the stock market overreact? Capital market turbulences have cast doubt whether the behaviour of stock markets is in line with rational investor behaviour. This book investigates evidence of reversals in the cross section of stock returns. The surprizing finding of this monograph is that reversals in stock returns are paralleled by movements in fundamentals. Outperformance in the stock market is driven by outperformance in corporate earnings. This monograph analyzes this effect and provides background reasoning both from a theoretical and an empirical point of view. The reader pursues the question whether capital markets are efficient and thereby obtain a deeper understanding of the relationship between stock returns and underlying fundamentals