“Analysis of the reaction patterns observed in the Dutch stock market, in response to shocks caused by the financial crisis”

This paper focuses on the search of specific behavioral reaction patterns of stock returns in Euronext Amsterdam, following extreme event periods. Conducting an event study using the 3 main indexes of the Dutch stock market gives us the ability to concentrate on recent years of financial development of a central European country in terms of its central stock market and in relation to the financial crisis affecting most of stock markets around Europe. Selecting market capitalization as the basis of index separation limits the size-effect that would probably lead to biased results. The empirical tests conducted suggest that daily return data are consistent with underreaction following positive news and overreaction following negative news, though evidence is found to be weaker compared with other studies using the methodology of mean-adjusted returns. The analysis gives favorable testing ground for further examining the significance of the results under the influence of risk factors Fama and French (1996), calendar effects, or unique global financial crises, which have been detected as main drivers of anomalies in previous studies. The scope and significance of this analysis is described in the first section, highlighting the importance of the research question under examination and driving the attention towards possible limitations of conducting a similar analysis to other stock markets. Furthermore EMH and several anomalies detected in similar studies are explained in the second section, along with the definitions of overreaction and underreaction which frame the main examination hypotheses of the study. Several tests, findings and limitations of event studies are described below, forming the literature review of the paper in the end of the second section. The next section, which forms the bulk of the paper, turns to the description of the main methodology and data under examination, and discusses how they could be used on conducting further tests for strengthening the evidence of market abnormal behavior significance. The paper ends with a brief discussion and conclusion.