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Empirical Study On Shanghai A-share Stock Market Overreaction

Posted on:2011-07-03Degree:MasterType:Thesis
Country:ChinaCandidate:Y M LiFull Text:PDF
GTID:2189360305999370Subject:Finance
Abstract/Summary:PDF Full Text Request
Since the 80s of the 20th century, a variety of anomalies have been noted in financial market. Standard finance theory, based on the efficient market hypothesis (EMH), has been challenged theoretically and practically. Its leading position in the financial investment was seriously shaken. Behavioral finance has developed rapidly, and it provided new ways to explain the anomalies which standard finance cannot explain. Among the anomalies, the stock market overreaction has been attached great importance by the theoretical circles. It is one of the important issues of the differences between behavioral finance and the standard finance. Different from developed markets, Chinese stock market has a short history, and it is still a developing market. The atmosphere of speculation is strong, and the psychology and emotion of investors have great impact on the stock market. Therefore, the study on Chinese Stock Market over-reaction is significant. We hope to explore the effectiveness of Chinese stock market.This paper reviews the efficient market theory and the development of behavioral finance at first, then presents the relevant definition of over-reaction. Next, we reviewed some important researches and papers at home and abroad since De Bondt and Thaler(1985) for the first time to study on the stock market overreaction. Then, depending on different formation period and different testing period, this paper used the market adjusted cumulative abnormal returns CARs method and BH buy and hold method to study the existence of over-reaction in the Shanghai A-share market between 1996-2009, and to discuss the effectiveness of the strategies based on the over-reaction, whether arbitrage portfolio could obtain significant cumulative excess return, and to compare with the empirical results of the sensitivity. Finally, based on theoretical and empirical analysis, we will summarize the full text, and give recommendations.
Keywords/Search Tags:Behavioral Finance, Winner Portfolio, Loser Portfolio, Market-adjusted Excess Returns
PDF Full Text Request
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