"Overreaction" And "Underreaction": An Empirical Research On The Chinese Stock Market

Overreaction and underreaction are two abnormal investment phenomena in the stock market, which challenged the effectiveness of Efficient Market Hypothesis. On the basis of the behavior finance theories, this article investigates and analyzes the manifestations, causes and countermeasures of the over-and-underreaction.Based on local and foreign scholar's studies on over-and-underreaction, this paper attempts to examine the relationship between size effect, share-holding ratio and over and under-reaction for the sample of 848 companies in Shanghai A-share stock market. With screening 720 financial reports from 1997 to 2009, the empirical study is focused on the factors affecting the over-and-underreation of Chinese stock market and try to analyze the correlation between size effect,share-holding ratio and over-and-underreaction by applying Simple Factor Correlation. The main conclusion of this article is following:(1) There is asymmetry in the overreaction and underreaction in Chinese stock market.(2) The result of this paper illustrated that there is no notable correlation between size effect and over-reaction.(3) The behavior of investors in China leads to the over and under-reaction. The share-holding proportion of institutional investors have negative correlation with stock price fluctuation. Individual investors are more likely to be overreacted.