How do Stocks React after Extreme Daily Returns? The Dutch Case

In this paper we investigate the return patterns after extreme daily returns on the most liquid stocks on the Dutch market over the last 20 years. We find some evidence of reversal and momentum effects. Investors seem to underâ€react to good news, and overreact to bad news. Although the economic significance of both drift effects mounts up to over 200 basis points CAAR over 1 to 3 weeks, the statistical significance of reversal effects after negative shocks is stronger.