Behavioral Finance:the Development Path And The Evidence From China's Stock Market

The standard finance theory reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of weekend effect and reversion effect. Finance literature in this decade and after suggests a more nuanced view of the value of the efficient markets theory, and, starting in the 1990s, a blossoming of research on behavioral finance. Weekend effect is a remarkable anomaly of the standard theory. This paper examines the weekend effect in the stock markets of China. We find negative returns on Friday after Jun. 2001, in a direction contrary to the positive returns before. The finding suggests that this weekend regularity in China may be reversed by the herd power. This conclusion is obviously consistent with a behavioral finance approach.