Do Investors Overreact for Property and Financial Service Sectors?

Abstract

There are limitations in the understandings of investors’ overreaction to the volatility in less transparent industrial sectors. Investors investing in a less transparent sector are likely to over-interpret available market information. This article compares investors’ reaction to market shocks across different industrial sectors, through analyzing the information content in implied volatility using financial derivatives of individual companies in Singapore. Investors in the less transparent property and financial service sector are found to overreact on market shocks, further destabilizing the market. The findings imply that regulatory measures that increase the level of transparency could aid the stabilization of markets. JEL Classification: G13, G14, G18