Empirical Study On Overreaction Behavior Of A-Share Market In China

With the continuous development of financial market, traditional finance has to face more and more "dilemma". There are many kinds of so-called "market anomalies " beyond reasonable explanation, the most representative one is over-reaction. The efficient market theory, as the basic theory of classical financial has shaken and its rationality has been challenged. Because reasonable solution can not given from classical financial theory, behavioral finance raised at the historic moment. As a emerging discipline,it is wildly used especially in explaining “market anomalies”. Foreign study on behavioral financial theory and over-reaction is much more earlier and deeper. Domestic research is later, the main objective reason is that the generation of Chinese stock market is late which cause the lack of stock data. So research of over-reaction in Chinese stock market remains to be further discussed.This paper focus on study over-reaction behavior in shanghai stock market after Shanghai-Hong Kong stock connect program officially opening. Therefore, the selected analysis object is the Shanghai stock market shares. This paper chooses the stock data through a period of time before and after the opening day as sample. Statistical software is used to do the empirical research. First of all, this paper introduces fundamental theory of behavioral finance, the concept of over-reaction and explanation about over-reaction based on different theories and models. Then time series analysis method and ARIMA model are used to research the impact of Shanghai-Hong Kong stock connect program on stock market. Base on that, use market adjustment method, we construct the winner and loser portfolio, the empirical research has carried on to estimate over-reaction in Shanghai stock market.The research results show that the Shanghai-Hong Kong stock connect program has a positive impact on Chinese stock market, it is a good news to the market. Through a period of time after Shanghai-Hong Kong stock connect program officially opening, market first underreacts, and then overreacts. The result is consistent with the numerous literature researches, namely in the short term market performance is under-reaction, in mid-term and long-term performance is over-reaction. This paper uses the principle of BSV model to do the theoretical analysis. Under the stimulus of good news, due to the psychological factors conservatism, our market lead to be insufficient cognition of new good news, which means under-reaction, then through the share prices rising, the psychological cognitive biases representative heuristic starts to work, over-reaction appears.In the end of this paper, conclusions are summarized, and puts forward some suggestions about investors strategies and capital market development.