IASTED International Conference on Software Engineering and Applications (SEA), Arizona, United States Of America, 14 - 16 November 2004, vol.467, pp.28-35
We study overreaction and the cumulative effect of the consecutive local overreaction patterns in ﬁnancial markets. The ”overreaction diamond” pattern  is one of the key components of a ﬁnancial market bubble. The cumulative effect of the consecutive short term overreactions arising from the deviation of stock prices from their fundamentals can be explained by attribution theory, feedback traders, affect and representativeness theories, and reference points in investments. We study large set of ﬁnancial data and propose a data mining method by exploiting the relative cumulative sentiment of the investors. This leads to a potential for the implementation of suitable algorithms and the preparation of software packages that can be useful for prediction of various stages of overreaction and bubbles.
Keywords: Data mining, overreaction, computational ﬁnance software,
ﬁnancial markets, and bubble.