Abstract:

In this study Overreaction Hypothesis has been studied specially in Istanbul Stock Exchange ISE in the light of the argument of efficient markets and behavioral finance In this context related literature was explained the validity of Overreaction Hypothesis and whether the contrarian investment strategy is useful to earn supernormal returns in different indexes of ISE were examined In the examination process of the overreaction the method of DeBondt and Thaler 1985 was modified and created one year portfolio formation test periods Monthly returns of the stocks which were traded continuously in ISE 100 ISE 50 ISE 30 ISE Financial and ISE Industrial indexes between July 1998 and June 2008 were chosen as the sample In conclusion of the analysis results which support Overreaction Hypothesis and the effectiveness of the contrarian strategies were found in all indexes except ISE 30 Index This may indicate ISE is not even efficient in the weak form Key Words: Efficient Markets Hypothesis Behavioral Finance Market Anomalies Overreaction Hypothesis ISE

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