Excess Comovement Of Chinese Stock Market

The motivation of this paper is to present some research achievements of excess comovement of Chinese stock markets. Excess comovement is the phenomenon of stock prices moves in the same direction, but cannot be explained by fundamentals. For that, we create a general theoretical frame in the view of behavioral finance, which can explain the mechanism of excess comovement quite powerfully. We also prove the existence of excess comovement in our nation, and test the efficiency of our theoretical frame.Our frame is consist of two parts, "investors emotion" and "Limit arbitrage" and the core of our frame is the classification mechanism. Investors cannot absorb every stock's information at the same time, because their attention is limited. They actually classify all the stocks into small categories, and just pay attention to one of them. So, if many investor choose the same category as their invest category, the stocks return in the category will commove together.For testing if my theory is right, we also exam three kinds of excess comovement, including:(1)index adjusting effect, which owes to investors categories stocks into index-stock and non-index stock;(2)price comovement effect, which owes to investors categories stocks into low-price stock and high-price stock;(3) Siamese twin effect, which owes to investors categories stocks according to their listing place. Our research result indicate on explaining the reason of excess comovement, the behave-oral finance did better than the traditional finance theory.We restructuring predecessors'achievements in an integrated framework, our research results will help us allocating assets efficiently and forecasting potential risks.