Overreaction In Native Stock Market And Its Endogenous Mechanism

Overreaction is known as one of stock market anomalies, and was investigated on long-term returns in NYSE firstly by De Bondt and Thaler in 1985 that is the beginning of research upsurge of behavioral finance. Domestic scholars also increasingly pay much more attention to this issue though there are much less monographs to this day. Furthermore, some of these domestic literatures even should be doubted about their approaches to overreaction. So this paper intends to clarify matters of overreaction.The studying history occurring in this issue typically reflects the process of behavior finance's development: from empirical analysis to modeling theoretically. After clearing up the existing literatures, this paper particularly focuses on two documents written by famous domestic scholars, Zhang renji et al. (1998) and Shen yifeng et al. (1999). It can be found, however, that the time span of portfolio formation period and test period is one of the critical facts that influence the interpretation and test of overreaction in domestic market in their literatures. Several aspects in empirical approach such as the selection of samples and event study are also discussed in this paper. Using the SSE trading data from 1993 to 2001 this paper find a significant overreaction phenomenon indeed. Besides, this paper also bring overreaction phenomenon into comparison between domestic stock market and NYSE studied by De Bondt and Thaler.Based on the actuality of domestic stock market, we have analyzed the three types of stock-traders in the qualitative perspective and set up a mathematical model: informed traders who are composed mainly of institutional investors; positive feedback traders and conservative traders both of which come mainly from the group of individual investors. Because of different power and approach for these three types to obtain and handle news that would influence price, the process of price equilibrium towards the stock expected value would be stretched for a longer period. Informed traders can earn information rents from trading, furthermore be speculators thoroughly. The larger the proportion of positive feedback traders is against conservative traders, the greater the price overreacts. In order to improve market-pricing efficiency, the influence of noise trading should be reduced to the best. Finally this paper gives several measures benefiting to our domestic stock market development according with its findings and relative explanations.