Overreaction Phenomenon And Its Causes In Chinese Stock Market: Empirical Research On Shanghai Stock Market

With the discovering of the stock market abnormal phenomena, the classical financial theory couldn't give the reasonable explanations, so that the behavioral finance developed fast. In 1985, DeBondt and Thaler finished the paper—"Does the stock market overreact?". They concluded there was the overreaction phenomenon in USA stock market. Now the behavioral finance has become the importtant and difficult staff in this field.In this paper, we conclude and analyze the characteristic of the relative research. First of all, we empirically analyze the overreaction phenomenon in Chinese stock market with the data of Shanghai stock exchange during the period of 1997-2004. It lasts eight years which can form whole estimate and monitor period, and there are lots of stocks in this period. Secondly, with the methodology in Zarowin's paper, we find out the causes of the overreaction phenomenon in Chinese stock market. Finally, we find that there is the overreaction phenomenon which lasts two years in our stock market and that size effect rather than monthly effect should be responsible for the apparent overreaction phenomenon. We make some positive difference to the development of behavioral finance in China.The main contents of this paper are:Firstly, we introduce the relative financial theory. It mainly consist of the background, history and the development of the behavioral finance. And we summarize the research status of the overreaction phenomenon.Secondly, we empirically analyze the overreaction phenomenon in Chinese stock market with the data of Shanghai stock exchange.Thirdly, we empirically analyze the causes of the overreaction phenomenon in Chinese stock market with the same data.Finally, the summing-up and proposes are given.