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An Empirical Study On Momentum And Reversal In Japan’s Stock Market

Posted on:2016-08-30Degree:MasterType:Thesis
Country:ChinaCandidate:Z Y YanFull Text:PDF
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The traditional modern finance began with Markowitz’s portfolio selection theory in the 1950s. After that, many other important theories appeared,including Modigliani-Miller’s theory of corporate finance,the Capital Asset Pricing Model,Effitient Market Theory, the Option Pricing Model and the Arbitrage Pricing Theory.In all these theories,it is believed that all the investors are fully rational,transactions are randomly occurring and investors can arbitrage without risk infinitely. But as the development of the extensive and intensives study in the real financial market, many anomalies are found which are very hard to explained by standard finance theories.The momentum effect and the reversal effect are two of anomalies that investors concern.The capital asset pricing model assumes that investors are fully rational and investors have the same view of the probability distribution of securities benefits.Many researchers believe that people are not always rational.For all the information investors are not omniscient and they cannot accurately calculate based on all of the information.Investors hardly know the probability distribution and their effect functions. So investors will be largely affected by their emotions,social culture and the media information.That will result in a lot of judgment errors,such as conservatism and overconfidence.Each investor has a different experience of life, different education and family background,so everyone may has different understandings even for the same information with the impact of the character or the memory.For these reasons,behavioral finance began to be developped fast.In this paper, we will explain some imperfections of traditional financial theory from the impact of anomalies. We will also give some introductions of anomalies, focussing momentum and reversal effects with an example.The exists of momentum and reversal effects mean that the stock price trend can be tracked. In order to explain the stock market anomalies, behavioral financeare developped fast these years. Behavioral finance is not depended on the premise of efficient market hypothesis. Behavioral finance researchers put the main points on the view of human combining the knowledge of psychology.However,it did not deny the traditional financial theories completely and it is developped on the base of the raditional financial theories.Theoretical models of behavioral finance give their explanation of momentum effect and reversal effect.BSV model, DHS model and HS models are constructed based on different situations to seek rational explanation for the change of securities price.In this paper,we will analyse empirically with the data of stock market in Japan after the comparing the difference of the stock market in China and Japan.The research will help us to know how the stock price move better. And it will also give some inspirations and reference on the research of our stock market in China.
Keywords/Search Tags:Momentum Effect, Reversal Effect, Behavioral Finance, Stock Market in Japan
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