HEC-Ecole de gestion de l'Université de Liège
HEC-Ecole de gestion de l'Université de Liège

Private investors' overreaction to news within a persistent low interest rate environment

Wulf, Frederik ULiège
Promotor(s) : Hübner, Georges ULiège
Date of defense : 6-Sep-2016/12-Sep-2016 • Permalink :
Title : Private investors' overreaction to news within a persistent low interest rate environment
Translated title : [en] Private Investors’ Overreaction to News Within a Persistent Low Interest Rate Environment
Author : Wulf, Frederik ULiège
Date of defense  : 6-Sep-2016/12-Sep-2016
Advisor(s) : Hübner, Georges ULiège
Committee's member(s) : Muller, Aline ULiège
Gehde-Trapp, Monika 
Language : English
Number of pages : 86
Keywords : [en] Overreaction Hypothesis
[en] Contrarian Effect
[en] Markov Regime-Switching Model
Discipline(s) : Business & economic sciences > Finance
Institution(s) : Université de Liège, Liège, Belgique
University of Hohenheim, Stuttgart, Germany
Degree: Master en ingénieur de gestion, à finalité spécialisée en Performance Management and Control
Faculty: Master thesis of the HEC-Ecole de gestion de l'Université de Liège


[en] The proposition made in this thesis is the provision of a testable hypothesis that risk-adjusted abnormal returns are associated with a contrarian strategy that is induced by the low-interest rate environment. The monetarist and risk-taking channels of interest rate transition derive the proposition that an increased amount of private investors is pushed towards the stock markets. Therefore, the behavioristic model of Hong and Stein (1999) is adjusted for this circumstance. The assumption is made that this group of private investors increases the portion of “momentum traders” in the model; this leads to a pronounced momentum pattern that is followed by a trend reversal. The line of argumentation gives reason to believe that risk-adjusted abnormal returns are associated with this behavioral pattern. Hence, this would imply that this pattern is exploitable by a contrarian strategy. First, in the empirical analysis, a Markov regime-switching model for the German stock market is used to establish a link with the principal components that have been extracted from the interest rate yield curve. Then, an explorative portfolio analysis of this stock market finds the presence of the predicted contrarian effects. Contrary to the proposition of the theoretical model, this contrarian effect is explained by the market risk premium, size, and B/M ratio, and does not yield excess return. Nevertheless, the considered strategy is of interest, as it corresponds to investors’ search for yields within this low-interest rate environment.



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  • Wulf, Frederik ULiège Université de Liège > Master ingé. gest., à fin.


Committee's member(s)

  • Muller, Aline ULiège Université de Liège - ULg > HEC-Ecole de gestion de l'ULg : UER > Finance
    ORBi View his publications on ORBi
  • Gehde-Trapp, Monika Université de Hohenheim
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