| Efficient Market Hypothesis (EMH) has become an important foundation of modern financial theory since it was founded. Seeming perfect, EMH is too simple to explain many financial anomalies. On the other hand, behavioral finance (BF) as a new-born theory, combined with psychology and human behavior, makes clear these phenomena perfectly. BF is not only a challenge but also a supplement to conventional finance.The question about over-reaction and under-reaction is a hot issue in BF. The winner-loser effect among those anomalies is just a carrier of this issue. There have been empirical tests and their analysis in earlier researches abroad. China stock market as a young market, has its own characteristics different from the mature markets in Europe and the United States. Most domestic scholars borrow ideas from foreign counterparts, which leads to some limitations.This paper reviews the corresponding empirical tests, and simplifies the calculation of cumulative excess returns. An analysis software is also developed by VB for the tests of winner-loser effects, using the data of A shares from July 1994 to December 2005 in Shanghai and Shenzhen securities exchanges. It is found that the results are not statistically significant. Further more, tests are done to the stocks in the information industry and manufacturing in Shanghai stock market respectively. It can be concluded that winners turn weak and losers even weaker in the former industry, meanwhile, stocks in the latter are under-reacted. The paper also investigates as to whether there is a similar anomaly among Shangzhengl80-index companies, which concludes that Shangzheng180-index companies are mostly under-reacted and of rising potential. The investment strategies from these tests, particularly those momentum strategies, have some practical significance for investors. |
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