Number Preference Under Chinese Traditional Culture And Stock Price Clustering

Figure is a direct expression of information transfer in the financial markets. Stock index reflects the overall dynamic of the stock market with figures; companies use figures to report the surplus in the annual report; while the price of a single stock is also represented by numbers. The numbers in the financial markets have a particular economic meaning. In an efficient capital market, investors are fully rational, stock prices are determined by the intrinsic value of the company, investors pay attention to the economic implications behind the numbers, figures as a representation only helps in relative comparison. However, a recent study of behavioral finance found that human psychological factors affected the handle of information and decision-making process, personal character, emotional and psychological factors play an important role in the investment of financial assets, people are not always making investment decisions in a rational manner, the behavior of investors are not only influenced by their own existing cognitive biases, but also subject to interference of the external environment. People with different cultural backgrounds or different stages of human history have psychological preferences for certain numbers, and these preferences may have an impact on investor’s behavior and the formation of the stock price.In an efficient capital market, because stock prices reflect the real value of the company, final digit of the stock price should render uniform distribution. However, if the traditional culture or psychology helps, this situation is likely to change, reflecting some special rules. In considering the number preference, if stock traders in our country are affected by traditional culture during stock trading, they may propose to end the trading price with number8and avoid number4in the stock transaction, then the stock price will be more likely to end in8than4. Therefore, this paper discusses whether number preference under Chinese traditional culture will reflect in the price of the capital market, namely whether the stock price will have the clustering phenomenon of ending in8more than4, and the paper also talks about the factors that influence this phenomenon. This research and interpretation will not only provide important evidence for the study of behavioral finance, laying a foundation for further study of the absorption rate of information in China’s securities market and limited rationality of investors, but also discover and understand the characteristics of China’s emerging capital markets. Meanwhile, the study will contribute to further understanding of the behavior of investors and stock price formation in the capital market, thereby providing practical advices for investors in stock markets.Based on the analysis of existing research results, this paper use statistical and econometric modeling and other methods to study whether number preference under Chinese traditional culture will reflect in the price of the capital market, namely whether the stock price will have the clustering phenomenon of ending in8more than4, and the factors that influence this phenomenon are discussed in detail both from the theoretical and empirical analysis. We select the stock trading data of Shanghai Stock Exchange and Shenzhen Stock Exchange from1995to2012, differentiating between A-shares and B-shares, and use descriptive statistics and graphical analysis to study the clustering of prices and long-term changes in the price clustering and the results of the sub-sample period, we also discuss the prices clustering effect in daily opening, high and low prices and the differences of clustering phenomena in the Shanghai and Shenzhen stock price, based on this, by introducing some dummy variables, we fit binomial logit models within these markets to study the factors that influence the stock price clustering.In view of the above study and discussion of number preference under Chinese traditional culture and stock price clustering phenomenon, we draw the following main conclusions.First, in the A-share market of Shanghai Stock Exchange and Shenzhen Stock Exchange, the daily closing prices have a widespread preference for prices ending in number8relative to4. And the same cultural effects also appear in the daily opening, high and low prices, and we can see the universality of this phenomenon. Meanwhile, compared with the A-share market, cultural effects in the B-share markets are relatively weak. That is the opening, high, low and closing prices in China’s securities markets have a significant clustering effect, and influenced by the number preferences in Chinese traditional culture. Second, with respect to the number8, although the avoidance of4is consistent with the influence of culture, especially strong and long-lasting in the Shanghai Stock Exchange, but the evidence is not entirely consistent with the previous expectation in this article. First, since the segmentation between A-share market and B-share market has gradually broken over time, differences of the ratio of the number4and number8between A-share and B-share should dissipate. Secondly, the continuous development of the stock market increased maturity and the level of information of A-share markets, indicating that both the clustering effect and number preference will dissipate over time. Although to some extent, this reduced phenomenon is observed in the Shenzhen stock market, but clustering effect on the number8has not completely disappeared, and remain exists in Shanghai stock market until2009.Third, the differences of price clustering between the Shanghai Stock Exchange and Shenzhen Stock Exchange can partly explained by differences of their respective markets, their price levels and the market transactions, but this does not fully explain the differences between the two markets. Although there has been substantially greater clustering on number8relative to4in the Shanghai A-share market, but most of the clustering exists in stocks with high price level and greater volatility. Once these factors, as well as the level of information available on prices were included in the analysis, then the avoidance of4in the two markets will become more correlated, the preference to the number8is similar. In fact, it may be more apparent in the Shenzhen stock market.Fourth, the attraction hypothesis is confirmed by the data in China’s stock markets, and the result is consistent with previous studies. Namely the number0is more significant because of its characteristics, and it is more attractive than the number5, and number5has a stronger attraction than the other even numbers, number0and number5are two most frequently observed digits in the final digit of share price. Price negotiation hypothesis is also confirmed in China’s stock markets, especially the A-share market, including price, market value and volatility variables are all significant. That with the increase of the stock price and volatility, clustering effect will increase significantly. Overall, our model explains relatively little of the sample variance around the mean. This suggests that either additional or undefined variable can explain the clustering phenomenon to some extent, or it is just a uniform, ubiquitous phenomenon.Compared with other existing articles, this article has the following features.1. This paper selects stocks of listed companies in Shanghai Stock Exchange and Shenzhen Stock Exchange, differentiating between A-shares and B-shares, in order to portray the impact of behavior and culture of different investors on the stock price clustering phenomenon more accurately.2. We use descriptive statistics and time series graphs to analyze changes of price clustering in the long run, and try to divide the sample into several periods to further discuss the sub-sample results due to the structure transformation of China’s securities market; the paper study the clustering effects of opening, high and low stock prices as well; we discuss the differences of price clustering effect between Shanghai Stock Exchange and Shenzhen Stock Exchange and try to give some reasons.3. By introducing a dummy variable (whether the trade is in several important traditional holidays) and other factors to discuss the clustering effect of the stock price.There are still several defects in this paper. First, when we study the factors that affecting the stock price clustering effects, we should consider in a more comprehensive way, but there is no uniform standard in the existing researches, the paper chose appropriate control variables and cultural variables based on preliminary estimate results of the raw data and the availability of variable data. Secondly, in the comparative analysis of clustering effect between the Shanghai and Shenzhen stock market, the reason of Shanghai stock market has a continuing preference for the number8may be considered inadequately, we look forward to the follow-up analysis from other perspectives and get an explanation. Finally, subsequent research can also include the trading data of the London Stock Exchange and other foreign stock markets in order to compare the results with our result, but due to the difficulty of data availability and the limited time and energy and other reasons, this article only studied the specific circumstances of China, With the enrich of data in the future, I will improve my study and expect to obtain more accurate results.