Research On Inversion Effect Of A - Share Market Based On Non - Systematic Risk

Since Fama’s Efficient Market Hypothesis and Markowitz’s Capital AssetPricing Model, it has been widely questioned by many scholars, because itrelates to whether asset pirces can be correctly priced and investors are rational.In the past20years，with a seires of ifnancial anomalies are gradually found，empirical evidence which inconsistent with modern financial theory is alsoconstantly being raised. Reverse effect is one of the anomalies, although mostscholars has been basically agreed its existence, its genesis was relatively scarceand mostly based on traditional behavioral finance’s perspective of combiningcognitive biases and mental activity of investors. In recent years, foreignscholars began to study the cause of reverse effect from the perspective ofidiosyncratic irsk. The paper will also benefit from this perspective, explore thecorrelation between the reversal effect and its unsystematic risk, that is whetherthe strength of the reverse effect related to the unsystematic irsk. Through thisstudy, on the one hand，we provide a new way of thinking the cause of reverseeffect, on the other hand, it also has great significance of investors’ rationalinvestment，deepen understanding of the inherent characteirstics of China’sstock market.First, this paper reviews the research from domestic and foreign scholarsabout reverse effect and its causes. Then birefly describe the efficient markethypothesis and its query, then we introduce the discovery of reverse effect andother ifnancial anomalies and how efficient markets scholar and behavioralfinance scholar interpret the mechanism of its formation. Then, we use theclassical method of CAR to study the reverse effect of the Shanghai StockExchange. The results show that even the current stock market already exists acertain amount of short selling mechanism, but reverse effect，especially in themid-reversal effect still exists. This paper selects the stock data from June1，2003to June1on the Shanghai Stock Exchange and uses the CAR method toconstruct strategic portfolio which the formation peirod and holding penod were 6,9,12months, the result found that when a12-month peirod was constructed, itshows a significant reversal effect. Then，this paper benefit from the view ofunsystematic risk to explore the influence factors of the reversal effect. Theresults show that there exists reversal effect on the A share market and positivecorrelation between the unsystematic irsk and the strength of reversal effect.