Does the Stock Market Still Overreact? A Python Contrarian Strategy
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In 1985, behavioral economists Werner De Bondt and Richard Thaler published a landmark paper arguing that stock markets systematically overreact to news — that "Losers" get punished too harshly and "Winners" get rewarded too generously, and that both eventually snap back toward fair value. This mean-reversion effect, driven by human emotion rather than rational pricing, became one of the most cited anomalies in academic finance. The question worth asking in 2024 is: does it still work? This art