Investor's Underreaction Hypothesis Under-reaction is the under-reaction of financial markets to news, resulting in a sustained drift in the price direction of markets and equities instead of the quick surge to the fair value predicted by EMH. We have created methods to take advantage of these cognitive biases in our investment management due to some of the most significant studies in behavioural finance, including Underreaction. A lag occurs before the market completely assimilates the information that is finally reflected in the stock price because investors underreact to new information because they anchor to their past views and prior information. Investor under-reaction and overreaction to news present a problem for the Efficient Market Hypothesis since investors frequently do one of these things. These reactions may still align with the Efficient Market Hypothesis even if overreactions and underreactions were symmetrical. However, investor behaviour indicates...
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