The Empirical Study Of Overreaction In Chinese Stock Market

The stock market plays an important role in the financing. Because of it our society's economic resources have been effectively configured. However, with the stock market development, financial anomalies continue to emerge, and the overreaction is one of the problems that academic focus.The paper takes the monthly return data and annual return data from 1993 to 2010 of Shenzhen stock market which come from the RESSET financial database to analyze the overreaction in Chinese stock market. And the paper uses the empirical analysis of the CAR model of stock market overreaction which based on research results at home and abroad. the paper analyze the existence of Shenzhen stock market, calculates the first sample of eligible shares during the monthly rate of return and the formation of the different calculation of the cumulative excess of the formation period and in accordance with the cumulative monthly rate of return. The winner is composed of the top twenty stock portfolio stocks, and the loser is composed of the twenty worst loser portfolio stocks. Next, we examine the winner portfolio and loser portfolio cumulative abnormal returns average monthly change in the test period. We found that the loser portfolio's performance in the test period, significantly better than the winner portfolio, the more obvious the longer the effect, Chinese stock market in the medium to long term to achieve the automatic reverse correction. The losers in the short term portfolio performed better than the winner portfolio, which shows China's stock market in the short term memory in response inadequate. On this basis, we study the entire bull market and bear market cycles in the presence of over-reaction. The results also show that China's stock market over the short term response is not obvious, and in the long-term memory in the apparent over-reaction. The paper analyze the stock market overreaction of the causes of behavioral finance from the perspective of the first analysis, based on the BSV model, DHS model and the HS model were analyzed, and finally the paper compared the three models. The paper uses behavioral finance to analyze the mentality of investors. First, BSV model is that investors in two important psychological factors: conservative bias and representation bias prompted. Second, DHS model is that public information and private information. And the two types of investors led the stock market overreaction. Third, HS model studies the mechanism of focus on the investors, he believed that news watchers and momentum traders make two types of investors in the stock market overreaction exists. The method uses packet size and the stake of the company on China's stock market to analyze the overreaction. The empirical results are the scale of company size and ownership which are the cause of the reason the stock market overreaction.The paper analyzes the overreaction in Chinese stock market and its cause with the combination of qualitative analysis method and quantitative analysis method. Finally, the paper gives the investment advice and policy recommendations of Chinese stock market.