THE WINNERS ANDLOSERS EFFECT IN THE MALAYSIA STOCK EXCHANGE

Abstract

The study examines the effect of winner and loser portfolios on stock return in the Malaysian Stock Exchange (formerly Kuala Lumpur Stock Exchange / KLSE) by using daily data for the period 1988 through 2002 and following the strategy quite similar to Jegadeesh and Titman (1993). The study finds that the period’s best stock return performers (winners) still outperform the prior period’s worst stock return (losers) for both 3-month ranking, 3-month testing period and 2-month ranking, 2 month testing strategies. This is labeled the underreaction phenomenon. If the study constructs shorter period, 1-month ranking, 1-month testing period, the prior loser-stocks are found to outperform prior-winner stocks. This is called the overreaction phenomenon. These findings are in line with prior studies, which found that the underreaction is in medium term, whereas overreaction is in short term.