Overreaction (explained in a minutes) – Behavioral Finance

A 1985 study on the New York Stock Exchange showed that investors often overreact to new information, affecting stock prices. It found that the 35 worst performing stocks actually outperformed the market, while the 35 best performing stocks underperformed. This was due to investors reacting excessively to bad news, causing stock prices to initially fall and then rebound. The study also highlighted availability bias, where recent information overly influences decisions, often leading to neglect of older but relevant data.