Information Shock And Stock Market Overreaction

In the traditional financial framework where investors are rational and markets have no friction,the price of a security is equal to its intrinsic value,and when any security-related information appears in the market,investors can always respond correctly and quickly,that is,the market is efficient.However,with the emergence of a variety of market anomalies and the development of behavioral finance,the study found that investors' irrationality makes markets not always efficient.Due to conservative deviation,representative deviation,attribution deviation,overconfidence and limited ability of individuals,the stock market often shows overreaction.In order to better study the stock market's reaction state to information,this paper takes stock price jump as the proxy variable of information impact,so as to relax the statistical demand for specific events and messages.This paper discusses the influence of information shock(positive impact and negative impact)on Chinese A-shares market by using combination analysis method and find that(1)in the short term(one month to three months),a-share market is a significant overreaction in our country,and after controlling Fama-French three risk factors and five risk factor,the abnormal returns are significantly greater than zero.(2)when in subsamples of different trading markets,different marketable stocks and different liquid stocks to do robustness test,the conclusion remains valid.In addition,small-sized as well as illiquid stocks,due to its trading not free,compared with large market value and highly liquid stock,its t value is still significant during longer formation period and longer holding period,and the overreaction time to information shock is usually longer.(3)When exploring the formation period and holding period of portfolios,we find that the longer the formation and holding period are,the more insignificant the arbitrage portfolio income is,which means that as time goes on,the stock market gradually adjusts to an effective state,and in response,the longer the historical information is,the less influence it will have on the market.(4)In addition to use portfolio analysis,when through the Fama-Macbeth regression to explore therelationship between the yields and cumulative ump,we find that after controlling other factors,the coefficient before the factor of jump cumulative yield is significantly negative,which further confirms the information shocks have the negative influence on the stock yield.Overreaction is the reverse after irrational market volatility.The research of this paper further proves the inefficiency of the stock market.Due to the existence of overreaction,investors can use the historical stock price information to obtain excess returns in the short term.