ABSTRACT

Winner-loser anomaly explained that the shares are initially generate extreme positive abnormal return (winner) or the extreme negative abnormal returns (loser) will experience a reversal, especially for the loser stocks that outperform the stock winner.

The objective of this paper is to explore and analyze overreaction for stocks which include calculated Islamic Index (Jakarta Islamic Index) for period 2005 - 2006. This paper used method of De Bond — Thaler (1985), Dissainake (1997), Adler Manurung and Pondra Permana (2005) to select sample. Winner and loser portfolio was formed based their return and also used market adjusted excess returns.

The results show overreaction phenomenon occurred several times in the three-month observation period. But these reactions do not have a high level of consistency because overreactions lasted only one time so as not to represent other periods, even the pickles winner overreaction does not show any symptoms (all grades pickles winner positive three months period). Statistical analysis showed no anomaly overreactions on three-months observation period.

Keyword: overreaction, Islamic Index, return, winner, losser.