Study On Risk Of Chinese Stock Market Based On Investor Overconfidence

Chinese stock market, as a typical immature and emerging market, compared with mature foreign stock market there is still a big gap on building background, operation way, development history and so on, so'financial abnormal phenomenon'are more prominent and significant, mainly perform on boom-bust and high turnover phenomenon in stock market away from Chinese economic development. The risk of the stock market comes from high transaction volume, and according to the efficient market hypothesis, high transaction volume is non-existent in a market where investors are rational. Therefore, this article intended to explore the reasons causing the risks and high turnover of Chinese stock market based on behavior finance perspective.Based on the previous related research findings, first of all, this article makes a systematic analysis and conclusion on the behavior features of investors in Chinese stock market. Then under the hypotheses condition on investors have overconfidence psychological preferences and are price-takers of market, we build a mathematical model and explore the affect mechanism how investor overconfidence influences the risk of Chinese stock market in theory. At last, taking the relevant data from January 1996 to June 2008 for the samples in Chinese stock market, adopting turnover and misevaluation index to measure investor overconfidence level, we use the appropriate econometric model to explore the relationship between investor overconfidence psychological preferences and returns or risks in Chinese stock market by empirical research. Theoretical and empirical research results show that: there is a positive relationship between investor overconfidence psychological preferences and the risk of China's stock market, and in different stages of market performance, investor overconfidence levels are not the same, and the factors affected stock market risks are also different. The study results in this paper can explain boom-bust phenomenon and high turnover phenomenon of Chinese stock market to some extent, deepening and developing the traditional theory on stock market risks.Concretely, this article makes theoretical and empirical analysis mainly based on the following four aspects:1. First of all, using descriptive statistics method to analyze investor behavior characteristics in Chinese stock market. Mainly including age, sex, educational level, career and regional distribution of investors in china's stock market, and the number of new accounts of the investors each year in the stock mark, ownership ratio of market value, holding stock period, the information sources making decision, sources of equity investment funds, and earnings, etc. Preliminary results indicate that investors in Chinese stock market have overconfident psychological preferences and non-rational behavior characteristics, and investor performance for transaction subjecting to market impact may be greater than the book value of the individuals.2. On the basis of previous research results, under the hypotheses condition that the investors are overconfident and price-takers, this paper studies the effect mechanism of investor overconfident psychological preference on the risk of Chinese stock market by setting up an appropriate mathematical model theoretically. The result shows that there is a positive correlation between investor overconfidence psychological preferences and the risk of stock market.3. Taking all the A shares listed on the Shanghai Stock Exchange as the research object, and relevant data in Chinese stock market from January 1996 to June 2008 period for the sample, using turnover to measure investor behavior, market return to measure market performance, according to market performance we divide the sample interval and then explore the relationship between turnover and market return in each sub-sample. The result shows that market return is a significant influencing factor on turnover. And in different market performance phases, market return affecting the turnover is in different bands.4. Taking all the A shares listed on the Shanghai Stock Exchange as the research object, and relevant data in stock market from January 1996 to June 2008 period for the sample. We adopt the turnover and misevaluation index to measure investor overconfidence level, and then make use of appropriate econometrics models to study the relationship between the investors'overconfidence and risk of Chinese stock market in each market performance phase based on reasonable division of sample interval. The research result shows that there is a significant positive relationship between investor overconfidence and risk of Chinese stock market. And in different market performance phases the influence degree investor overconfidence on the risk of the stock market are different.