Empirical Research On Positive Feed-back Trading Strategy In Chinese A Share Securities Markets

The positive feedback trading strategies are very common in the financial market, which is to buy in bull markets and sell in bear markets, where investors make decisions of Period t based on securities' returns on Period t-1. Such trading strategy is the root of stock market bubbles, which leads to supernormal fluctuations of the security market. The characteristics of positive feedback trading can explain the mechanism from the formatio n to the bursting of asset price bubbles in the security market and the instability of leptokurtosis return distribution to a large extent.This paper follows the behavioral finance theories, learns from domestic and overseas research achievements, applies modern statistical methods and combines normative and empirical analysis and qualitative and quantitative analysis to conduct empirical test on the positive feedback trading effects of the Chinese stock market based on Shanghai Composite Index and Shenzhen Component Index. It structures trading strategies depending on the subsectors of different industries of Shanghai Composite Index to make the portfolio cumulative returns outperform the market. The empirical study indicates that the evident existence of positive feedback trading phenomenon in Chinese stock market and that the existence of a large number of noise traders in Chinese stock market reduces the stability of the market. Finally, based on the empirical study, this article briefly explains the reasons for the appearance of positive feedback trading and proposes some strategies about the construction of the security market and the investment decisions of investors.