BEHAVIOUR FINANCE PRICE OVERREACTION IN CHINESE (SHENZHEN) STOCK MARKET

Abstract

For a long time, the financial classic theory represented by the effective market theory and asset pricing theory occupies the dominant position of modern financial theory. However, since the 1980s, financial disserts that contradict classic theories such as overreaction and underreaction have emerged. Many scholars have found that these phenomena are difficult to explain with modern classical theories or models. Both negative and negative influence the normal reaction of the stock market. Overreaction and insufficient response occupy the core position of financial anomalies.

In this context, the first chapter is this study are mainly of over-reaction in China's stock market. Secondly, it reviews the related literatures of overreaction in China's stock market, and then explores the excessive reaction and insufficient reaction of China's stock market based on the cognitive bias of behavioral finance and the theory and model of limited arbitrage. The third chapter of this paper is the research method. This paper uses the market adjustment model to calculate the cumulative excess return rate and constructs the model with the classic “winner combination” and “transfer combination” methods. Using the latest trading data of China's stock market, we have empirically tested the over-reaction and insufficient response of China's stock market from a long-term perspective. This paper confirms the Chinese stock market with empirical results based on finite individuals, cognitive bias, group behavior, financial anomalies, non-effective market paths, and theoretical and empirical analysis of typical financial anomalies from a long-term perspective. There is a clear overreaction over a long period of time. Finally, this article explains the reasons for the overreaction in China and gives some suggestions to investors.