Global reaction of security prices to major US-induced surprises: an empirical investigation

Abstract

This paper documents investors' reactions in international equity markets to major events in the US market. The results provide evidence that investors in advanced equity markets overreact to market surprises originating from the USA. In the case of emerging markets, however, the results indicate that investors' reactions are consistent with the predictions of the uncertain information hypothesis. The implication of these findings for international investors is that a contrarian strategy in the advanced markets and a strategy of buying current losers and holding on to current winners in the emerging markets may generate abnormal returns.