Study The Evidence Of Overreaction In Shanghai A-share Market

Efficient market hypothesis (EMH) was first proposed by FAMA (1965), efficient market hypothesis is about the explanation of all kinds of information that affect the capability, degree and the speed of price reaction, is about the research of market efficiency. The securities market price of the efficient market fully and accurately reflect all information, so information based securities trading can’t earn extra benefits. However, with the development of the financial market, the new classical theory and the reality of the ongoing financial markets have a conflict, a lot of vision that modern finance cannot explain appeared, and behavioral finance theory began to develop rapidly. The stock market overreaction is one of the important challenges to effective market hypothesis, is also an important content in the field of behavior finance research."Overreaction" hypothesis was first formally proposed by De the bond and Thaler. They believe that investors in the actual investment activities will sudden have a "overreaction". Overreaction on the message refers to the lead investors to overreact to some of the information beyond a reasonable level due to the existence of irrational bias. Investors place too much stress for some information, causing the stock price excessive fell under the influence of negative information and excessive rise under the influence of the good news.As anomalies in the stock, market over-reaction reflects the reaction sensitivity of stock prices to the information. Market participants a strong response to market information, to cause severe changes in stock prices, more than the rational expectations price, subsequent to the reverse correction in the form of a return to its reasonable price.At present, at home and abroad about whether the stock market over-reaction has been considerable discussion, most scholars believe that the stock market in the short-term insufficient reaction, long-term overreaction. But very few people study stock market overreaction from the micro and macro level. Price of securities is a comprehensive result of both the macroscopic information to affect the entire securities market and the microscopic information of the impact of some of the securities or individual securities, while the former is corresponding to the systemic risk in the market, and the latter is corresponding to the market non-systemic risk. Therefore, whether there is overreaction about the prices of securities to the information should be studied from the macro and micro aspects, the empirical analysis is significant and should not be confused. So far, there are very few system distinction and study about this in the domestic securities investment theory community.The article first summarizes the study of Chinese and foreign scholars on the overreaction, introduced the efficient market hypothesis, over-reaction and other related theories;Then, from the micro and macro level, looking for evidence of the Shanghai A-share market overreaction. Over-reaction test on the micro level should be the model of De Bond. Take stock monthly closing price and the Shanghai Composite Index end of each month Shanghai A-share market from1996to2011for the sample,12,24months for formation and inspection of tectonic winner loser portfolio, and finally to observe the income of the arbitrage portfolio of the inspection whether in a significant reversal; the overreaction inspection on the macro level, a long-term rate of return autocorrelation test, variance ratio test method, by an empirical test about Shanghai A-share index end of each month during the1996-2011observe whether the market mean reversion characteristics exists.Finally, conclusions and policy recommendations are proposed.This article using the empirical economics draws the following conclusions based on the Shanghai A-share market over-reaction test.From the micro-level, short-term insufficient reaction and the long-term overreaction exist in the Shanghai a-share market. When the formation period and test period are12months, the arbitrage portfolio income was negative, the winner portfolio rate of return does not appear to reverse insufficient reaction; when the formation period and test period are24months, the rate of return of the winners and losers combination reversal, rate of return arbitrage portfolio is significantly positive and market overreacts.From the macro level, the Shanghai A-share market overreaction test results showed that:the self-correlation test and variance ratio test, two kinds of empirical analysis both support the mean reversion characteristics of the Shanghai A-share index. Shanghai A-share index reacts inadequate in short term and reacts excess in long term to the macro information.