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The Effect Of Investor Overconfidence On Stock Market Volume:Evidence From China A-share Market

Posted on:2017-03-18Degree:MasterType:Thesis
Country:ChinaCandidate:R K FangFull Text:PDF
GTID:2309330503457750Subject:Finance
Abstract/Summary:PDF Full Text Request
According to standard finance theory, in a perfect and completely rational security market, the volume should be zero when the market reaches equilibrium. However, volumes are high in reality, and investor overconfidence is one of many reasons. This paper studies the influence of investor overconfidence on volume in China A-share market. Firstly, this paper carefully studies relevant literature at home and abroad. Secondly, based on the frame of Grossman(1976) and Odean(1998), this paper introduces the hypothesis of investor overconfidence varying with price to a mathematical model, which helps to analyze the effect of investor overconfidence on volume. At last, based on the empirical approach of Statman, Thorley and Vorkink(2006), this paper tries to give empirical evidence from A-share market, and compare the effect in CHINEXT with other segment markets.Through the estimate of VAR model and Granger causality test, this paper finds that the growth of market volume is positively correlated to first-order lag of market return significantly, and market return is Granger cause of the growth of market volume. This result implies that the growth of market volume will be amplified in a bull market, and vice versa. This suggests that, there exist overconfidence and self-attribution in investors of China A-share market. That is to say, in a bull market, investors tend to attribute the positive returns to accuracy of their private information and their own excellent investment skills, encouraging them trading more frequently and hence push up the volumes. But in a bull market, they tend to attribute the bad results to uncontrollable outside factors, and hence reluctant to trade. Also, there is a similarly effect in each segment market, but the coefficient value decreases as the outstanding market value decreases, which might be caused by smaller elasticity of price, less liquidity and more price manipulation among small-value stocks.
Keywords/Search Tags:Overconfidence, Trading Volume, VAR Model, Granger Causality Test
PDF Full Text Request
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