Research On The Difference And Causes Of Overreaction Between Institutional Investors And Individual Investors

After the Chinese New Year in 2021,China’s stock market fell sharply.Many people believe that it is because of the group of professional institutions such as funds and securities,which caused individual stocks to deviate greatly from their own value,resulting in significant fluctuations in the stock market.Efficient market hypothesis can not explain this phenomenon well,so this paper starts from behavioral finance and takes overreaction as the direction of research.Academic circles generally believe that institutional investors are more rational and professional than individual investors,so there should be no such irrational behavior,so there should be no overreaction.With this doubt,this paper analyzes the monthly stock data from the second quarter of 2001 to the second quarter of 2021 by taking institutional investors and individual investors as research individuals and all a shares except the science and innovation board as research objects.Use cars model to test whether institutional and individual investors have overreaction;Empirical research on the causes of investor overreaction using the Fama French index.The results show that:(1)institutional investors and individual investors do not overreact in the short term(three months),and overreact in the medium term(one year),and the overreaction degree of individual investors is significantly greater than that of institutional investors.Institutional investors have no overreaction in the long term(two years),while individual investors have obvious overreaction.(2)Based on the empirical analysis of Fama French five factor model,it is found that the constant terms of loser portfolio and arbitrage portfolio of individual investors and institutional investors are significantly greater than zero,indicating that the five factor model can not well explain the excess return of both,that is,the traditional financial theory can not well explain the phenomenon of overreaction.When the investor sentiment index is added to the model,it is found that whether institutional investors or individual investors,the constant terms of win-win portfolio and arbitrage portfolio are not significantly different from zero,and the sentiment factor has a significant impact on the excess return of the portfolio.Therefore,investor sentiment is one of the causes of overreaction.Based on the above research results,finally,this paper will give specific suggestions on investment strategy,investor education,financial market system construction and market supervision.It is expected that with the help of the research results of this paper,it will have some impact on institutional investors and individual investors,so as to minimize the overreaction phenomenon in China’s stock market and promote the stable and healthy development of the financial market.