The Comparative Study Of The Overreaction In Shenzhen Main Board And GEM Board In China

In previous studies, Shenzhen mainboard and GEM Board were proved existing overreaction and overreaction have negative impact on the efficient market hypothesis, once proved the existence of overreaction, the efficient market hypothesis and other related financial economic theory will face challenges. Overreaction hypothesis theory as an important part of the behavioral finance, the development of overreaction has huge implications for perfection and maturity of behavior financial theory's system. From a view of practice, the research of overreaction has reference value for regulatory authorities of financial market. It helps policy-making and supervises the abnormal phenomena on the market. Meanwhile the overreaction research is related to investors' behavioral and psychological factors. So the important thing is help to reduce non-rational behaviors and mistakes of the investors through achieve universal education of overreaction and other behavior finance theory.Firstly, reviews the relevant theory and literature, including efficient market theory, overreaction theory and the explanation of causes of overreaction. Secondly, introduce the advantages and disadvantages of three kinds of test model respectively,and choice the CARs models to prove Shenzhen Main Board and GEM whether there is overreaction. At the same time, modify the calculation method of the cumulative excess return in the test model. Using the multiplication model to replace the addition model in formative period, and use buy and hold model to modify CARs calculation in verification period. This paper selects from March 2011 to February 2016 in Shenzhen Main Board and GEM stock market data to conduct empirical research, and according to investor's actual investment period, check the status of the overreaction in the short, medium and long term respectively. Test results show that the Shenzhen stock market does not exist overreaction in the short term, but GEM has under-reaction for 9 months and 12 months in testing period in the midterm, while the Shenzhen mainboard market does not exist overreaction; long-term test results show consistent with the overreaction hypothesis, our long-term Shenzhen stock market isn't efficient, there is overreaction phenomenon. Specifically Shenzhen mainboard has over-reaction and GEM board has under-reaction in the long-term. This means that based on data from previous returns, stock portfolio's performance not only can be predicted, but also the winners combination can continue beat losers on average in subsequent periods in GEM board, while in Shenzhen mainboard need to use the contrarian strategy. Finally, according to the results of the test analysis conclusion, analyzes the reason of the two market overreaction and put forward the corresponding investment strategy, investor education, policy advice, and make prospect for the next step research.The innovation of this article lies in: past research mainly analyses overreaction in a single market, and use the overreaction phenomenon to form a reverse investment strategy or the use of under-reaction phenomenon to form momentum investment strategy. This article conducted a comparative study of two markets, Let the Shenzhen mainboard and GEM testing the degree of overreaction and compared the similarities and differences; At the same time, combined with short-, medium-, and long-term to conduct multi-period test, implement the vertical and horizontal comparative study.