About China's Stock Market Overreaction And Reaction Phenomena Of Empirical Research

According to traditional theory of finance, the efficient market hypothesis (EMH), the market is efficient, and prices of securities in an efficient market can react rapidly and unbiasedlyto the whole information. But, there are internal defaults in the EMH, and many anomalies in the financial markets conflict with the EMH. All of these lead to manychallenges to the EMH.Accompanied by the challenges to EMH and the studiesof the financialanomalies, Behavioral finance theory has established gradually. DeBondt and Thaler are the two pioneersin behavior finance, they put forward the concepts of overreaction and underreaction, stir up the research in these area. Mostforeign studiesagree on that overreaction do exists in financial markets. However, the domestic studies in this fieldnot onlylag behind the foreign countries, but alsotheir conclusions are different with each other.In this paper, the author selects the data of the prices of the securities exchanged in Shanghai and Shenzhen Stock Exchange.Adopting the method proposed by DeBondt and Thaler, constructing the losers and the winners, the author results in that,overreaction and underreactionboth exist in the financial markets of China, and the turnover of the two correlate with but lag behind the volatility of the stock-index. In our country, investors employ separatelythe reversal strategy or momentum strategy cannot gain perpetual profits. But it is better that employingreversal or momentum strategy in accordancewithfluctuations of the market index.