China's Stock Market Price Reversal Phenomenon

According to the efficient market hypothesis (EMH), the stock prices can reflect the information promptly in the efficient stock market. The investors can't gain abnormal return by the historical information. However, recently there are so many anomalies found in the real stock market that a lot of researchers start to suspect of EMH. From the late 1980s to 1990s, the increasingly active behavioral finance theory developed in attacking on EMH with theoretical and empirical methods. Therefore, research of Behavioral Finance has become a hot area again in the field of finance research. What's more, many scholars have also set up some behavioral models of investors to explain some anomalies.This paper investigates whether there is reversal phenomenon of stock price in Shanghai stock market. The results show that the prior period's worst stock return performers (losers) outperform the prior period's best return performers (winners) in medium-term and long-term. The Chinese stock market exists winners turn into losers, losers turn into winners in medium-term and long-term, but in short-term, this phenomenon doesn't exist evidently.Based on the empirical result, this paper has also set up a descriptive behavioral model of Chinese investors in the last part. This model is based on the existing model, HS model, as well as the characteristics of the Chinese securities market and investors. By using this behavioral model, the paper wants to explain the reversal phenomenon of stock price and research on the behavior of Chinese stock investors.