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Experimental Analysis Of The Short Time Overreact And Underreact Of A Shares In Stock Market Of China

Posted on:2006-01-19Degree:MasterType:Thesis
Country:ChinaCandidate:W J YangFull Text:PDF
GTID:2179360182971770Subject:Finance
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Research in behavioral finance suggests that investors in stock market have many cognitive biases,thus tend to overreact or underreact to unexpected information.This proves the stock market is not efficient. We document new patterns in the dynamics between stock returns and trading volume. Based on the weekly data of A shares of Shenzhen and Shanghai for the period from 2000 to 2004,this paper examines the short time overreaction and underreaction effect in stock market of China, with unexpected news released.This study could help us to examine the efficiency of stock market of China, and provide grounds for the improvement of the stock market in the future. We define unexpected news as unexpected change of turnover and return dispersion of the stock, which we call turn shock and return dispersion shock separately. Heteroscedasticity and autocorrelation are removed from both of the turnover and return dispersion series. Meanwhile, we construct one portfolio with big companies' stocks and another one with small companies' stocks, in order to study the correlation between the extent of the reaction and the scale of the A share which is traded in the market. The evidence shows that within the short time,there is overreaction and underreaction in Shenzhen and Shanghai stock market, which means the market is not efficient.The reason would be that there are still many problems in our stock market system, and investors are not mature enough in the whole. The extent of overreaction and the speed of the reversal after overreaction is positively correlated to the scale of the A share. Because the smaller the scale of the share is, the more easily the big institutions could handle the stock. Meanwhile, we find that in Shenzhen stock market, big companies' stocks underreact to the unexpected news, and it would take at least one week for the market to digest the news. The reason would be small investors have lost confidence in the market recently and take little attention to the news in the market. On the basis of the study, we suggest that we should raise the types and levels of the investors and improve their quality. We should pay attention to both the speculation function and the investment function of the market. Establish the pattern which all types of investors compete and complement each other, which could help us to improve the efficiency of the market.
Keywords/Search Tags:Behavioral Finance, Overreact, Underreact, Turnover Shock, Return-Dispersion Shock
PDF Full Text Request
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