Stock overreaction to extreme market events

The paper investigates the behavior of individual US stocks during the 21 trading days following the event of extreme movement in the market index on a day. We find that stocks tend to overreact after both positive and negative events, but in a more pronounced way in the latter case. This behavior is more intense when the market exhibits clustered extreme swings, indicating that the overreaction and market volatility are related. We also identify that the overreaction is driven by the performance of loser stocks that revert more strongly, even as they exhibit a lower market beta than winners.