Study On The Short-term Inertia And Reversal Effects Of Chinese Stock Market On The Basis Of Herd Effect In Behavioral Finance

The inertia and reversal effect of the stock market is an anomaly in the asset pricing theory,which contradicts the rational person hypothesis and the effective market hypothesis of the traditional financial theory but is confirmed by many securities markets around the world.In behavioral finance,there are also some related theories that the market is not effective,and investors are also difficult to be completely rational,which has certain commonalities with inertia and reversal effects and strategies.Studies using behavioral finance theory to explain inertial and reversal effects are not so many in the existing literature.On the basis of studying the existence of inertia and reversal effects in China's stock market,this article attempts to explain this phenomenon from the perspective of behavioral finance.The first part of the empirical research in this paper first discusses whether there is inertia and reversal effect in China's stock market in the short term.Data selection is based on the sample of all listed A shares from October 2007 to October2017 in Shanghai and Shenzhen stock market.For research frequency,this article selects the daily frequency that is rarely studied in existing literature.In terms of research methods,this paper adopts the Jegadeesh and Titman method,also known as J-K method,which compares the rate of return of inertial and inversion strategies by grouping during the ranking period and measuring the rate of return during the holding period.When estimating the existence of inertial effects,this paper sets the ranking and holding period to 1,3,6,9,12,and 15 trading days,respectively,a total of 36 J-K strategies.When measuring the existence of inversion effects,this paper sets the ranking period and holding period to 2,4,8,10,and 14 trading days,respectively,a total of 25 groups of J-K strategies.All sorting periods and holding periods are non-overlapping sampling methods.With January 2017 as the first holding period,recursively to August 2017,a sequence of all holding period yields can be covered.According to the study,no reversal phenomenon was found during the measurement period(from March 2017 to October 2017),but short-term inertia could be found,and the inertia effect was relatively significant when the ranking period was 9,12,15 trading days,and the excess returns of these portfolios are getting better and better over time.The second part of the empirical study of this paper attempts to explain the reason for the short-term inertial effects during the sample period using behavioral finance related theory.The idea is to assume that the herd effect model in behavioral finance can explain the short-term inertial effects of the stock market,and then to verify whether there is a relationship of interpretation and interpretation between them.The research method is CCK model analysis method.By matching the absolute average daily cross-section deviation of investment portfolio using inertial strategy and the absolute value of the combined daily rate of Shanghai and Shenzhen300 Index daily returns,this model can judge whether the herd effect could explain inertial effect based on the linear relationship between them.By this method,when the inertia effect of the portfolio is significant,the absolute cross-sectional deviation of the portfolio has a linearly decreasing relationship with the absolute value of the combined daily return of the Shanghai-Shenzhen 300 Index,and the herd effect is also very obvious.When the inertial effect of the combination is very weak or absent,the linear decrease between the two is not obvious,even there is a linear increase,which proves that the herd effect is not significant or does not exist.Therefore,this paper believes that the herd effect model in behavioral finance has certain explanatory power for the short-term inertial effects of the stock market.