Value Contrarian Investment Strategy In China's Securities Market Empirical Research

All along, whether the stock market is effective is a important problem which has been the focus of scholars at home and abroad. With the passage of time, a lot of anomalies appear in the stock market which makes scholars have a great deal of doubt about the validity of the stock market., and thus a new theory of finance which named Behavioral Finance comes to us. One of the anomalies called value anomaly has been concerned by lots of scholars, this paper attempts to study value anomaly in the stock market of China, and also study the answer of standard finance and behavioral finance to find which one is reasonable. First of all, this paper chooses financial indicators to structure the combination of value stocks and glamour stocks and use the return of a certain time later to test the existence of value anomaly in China. Then, through the Fama-macbeth equation to test the ability of these used variables to find whether they can explain the return. Then two ways are used to test where does the excess return come from, one way is the risk compensation hypothesis of standard finance, using traditional CAPM model to test the risk of value stocks and glamour stocks. The other way is the over-reaction hypothesis of behavioral finance, using the model of DeBondt and Thaler to test where does the extra return of value stocks and glamour stocks come from. Finally, the test results are compared to make the conclusion and make some recommendation about whether the strategy of value contrarian investment can be useful in our Chinese stock market.