Stock Market Overreaction And Underreaction After Information Shock

The theory of efficient market hypothesis holds that in a frictionless stock market,after the emergence of new information,the price of the stock can always be adjusted quickly and reflect all the information,that is,the stock returns after the information shock are unpredictable.However,with the emergence of many market visions and the development of modern behavioral finance theory,many studies have shown that the market is not always effective.The stock market returns after information shock can be predicted to some extent.Some studies show that the return has reversed after the information shock,while others indicate that return has drifted,that is,both stock market overreaction and underreaction have occurred.In order to.further explore the market effectiveness and provide a unified analysis framework to simultaneously capture the two different market response modes of underreaction and overreaction,this paper adopts the event research analysis method from the two dimensions of positive and negative impact on the stock market.In order to reduce the statistical difficulty of a large number of specific information shock events,and to capture the explicit or implicit information shock in the market from the quantitative and micro perspectives,this paper firstly conducts the stock price jump test and takes it as the proxy variable of information shock.Then,the abnormal return of the information shock day and the change pattern of the cumulative abnormal return after the shock are analyzed.The research shows that:(1)Under the positive shocks(the abnormal return on the day of the shocks are positive),the cumulative abnormal returns in the period after the impact has undergone a significant reversal phenomenon,that is,the market has overreacted;under the negative shocks(the abnormal returns on the day of the shocks are negative),the cumulative abnormal returns in a period of time after the shocks have experienced a significant drift phenomenon,that is,the market has underreacted.(2)When the abnormal rate of return data after 63 trading days after the information impact was used as a non-information impact sample for comparative analysis,no significant return reversal or drift phenomenon was found,which was consistent with normal market fluctuations.(3)When the different abnormal rate of return calculation method is used for the robustness test,the market also shows the phenomenon of return drift under the negative shocks and return reversal under the positive shocks.(4)When the sub-samples with different market value and different stock liquidity are studied,the income drift and reversal of appeals are found,and with the increase of stock market value and liquidity,the greater the degree of return drift and reversal,the more obvious the underreaction and overreaction.In addition,as an important participant in the market reaction after the impact of information,individual investors' investment transactions will have a great impact on the market's reaction.Therefore,this paper uses the method of difference average significance test to study the relationship between individual investor attention and market reaction mode.The study found that,when using the stock code anomaly search index and the proportion of individual investors' shareholdings as the proxy variables of individual investors' attention,as the individual investors' attention to information shock events increased,the degree of market overreaction and underreaction larger.The inefficiency of China's stock market is futher confirmed through the research on the market response mode after information shock and the research on the relationship between the attention of individual investors and the market response mode.Therefore,investors can obtain excess returns by raising awareness of their own investment behavior and market changes.