The Research Of Overreaction Of Investors In The Growth Enterprise Market In China

Research of behavioral finance has developed rapidly in China recently, which has provided a brand new vision for the study of how behavior characteristics impact the financial market. Especially for capital market in developed country like US, behavioral finance has provided a very good explanation for the stock market anomalies. As a typical anomaly, overreaction has received comprehensive study and many interesting conclusions have been made by researchers. Thus this paper wants to figure out whether it is possible to research the influence of investors’ behavior characteristics on the immature capital market in China from the point of behavioral finance. Particularly for the overreaction, most domestic researches in overreaction have been done in Shanghai and Shenzhen Stock Market, while few have been done in the Growth Enterprises Market (GEM) in China. The only few articles about the overreaction in GEM is written from the micro angle, which is about the overreaction of the Nonsystematic events. Obviously, it is not comprehensive to illustrate the existence of overreaction in GEM just from the micro angle. So this paper will research the overreaction of systematic macro events in the GEM with the comprehensive index of the GEM, which makes up the gap in this field.The research of overreaction in the GEM can be divided into two parts. The first part describes the theory of overreaction which includes the reasons, the process and the concrete performances of overreaction. The theory lays foundations for the empirical research of overreaction in the GEM. The second part is empirical research, which includes the reasons of choosing GEM as the object of overreaction study, how to choose systematic events and the empirical analysis. The empirical part analysis the CAR of the GEM in the event study method and the comparison analysis to test whether there is overreaction in the GEM. Meanwhile, the same event study is done in the Shenzhen Stock Market and the Small and Mid-sized Enterprise board (SME board). The comparison between Shenzhen Stock Market and the GEM can help get rid of the macroeconomic influences, so the result can be more effective. The comparison between the SME board and the GEM can help provide a more valid overreaction result for the GEM.The conclusions drawn from the empirical analysis is that there is indeed overreaction phenomenon in the GEM and investors tend to over-react with bad news and under-react with good news which is different from some foreign studies. Getting rid of the macroeconomic influences through the study of Shenzhen Stock Market, the GEM reacted to bad news more obviously compared to the SME board. While, there isn’t obvious overreaction to both good news and bad news in SME board. When doing the study, I classify the stock price fluctuation resulting from the market manipulation as overreaction. The reasons are as follows:the GEM is a new market which can easily be the target of market manipulation and the data and statistics of market manipulation is hard to collect in China. The empirical results also provide an evidence of the possibility of existence of market manipulation in the GEM.