China's Agricultural Futures Market Overreaction Phenomenon Studied

The agricultural futures market of China expanding, and the trading volumes have been growing continually. The futures price of agricultural futures market is becoming an important market guide price, and play its catalytic role in the economic development of the country. But China's agricultural futures market trading volume had increased sharply, it should to think about the motivation behind trading activity and price volatility:If the volatility of futures price responses correctly to the information impact, then the significant increase of trading volume results by the development and improvement of futures market. If the volatility of futures price is mainly caused by irrational factors or manipulation, then it need to take appropriate regulatory measures to regulate the futures market. The research of behavioral finance insist that unusual fluctuations of market prices are due to the existence of investors' various cognitive and behavioral deviations. These errors will cause investors to overreact to the impact of information or response inadequately. The study of overreaction in China's agricultural futures market is useful. From the micro level, it can help investors to understand and minimize their cognitive bias in the process of decision-making to improve their rational investment ability. It also can help investors to take advantage of market overreaction phenomenon to take certain investment strategies (such as the contrarian strategies) to get some excess returns. From the macro level, it is helpful to improve the efficiency of agricultural futures markets, and provide a reference to promote healthy and sustainably to the development of agricultural futures markets.Firstly, the paper reviews the literature on reaction at home and abroad. Further, the paper from the perspective of behavioral finance, analysis three types of futures market participants, the individual investors, institutional investors, the regulators of futures market in concluded, who have the cognitive and deviant behavior may result to over-reaction, and refer to the system characteristics of the futures market. The paper theoretically demonstrate the existence of futures market's overreaction. At last, through empirical analysis to examine the infer the existence of overreaction phenomenon in China's agricultural futures market, the following conclusions:(1) China's agricultural futures market, under the impact of significant information, exist over-reaction phenomenon. Take the monthly material information report of the U.S. Department of Agriculture as a big event, the t test before and after the date of this report was released soybean and hard wheat futures contract price volatility showed that the impact of major information will cause China's agricultural futures market overreaction.(2) China's agricultural futures market exist short-term overreaction phenomenon. The test showed that, in the normal condition(it means no significant impact of market information), the reverse of the mean profit of contrarian portfolio strategy on futures contracts will also happened, the agricultural commodities futures market overreact. But over a shorter reaction time, the overreaction phenomenon in general will not more than 3 days, that presents in China's agricultural futures markets exist the short-term response.