Overconfidence:the Empirical Analysis Of Trading Activities

Many abnormal Investment behaviors have been witnessed in recent years, and these phenomena cannot be explained by the traditional financial theories, nevertheless, according to recent market practice, overconfidence hypothesis had been proved as an efficient method to analyze these unusual scenes. For instance, under the frame of traditional financial theories, the increasing trading volume, erratic stock price volatility, frequent short-term momentum effect and etc. scenarios were incomprehensible. Yet due to the development of the study in investment behavior of both domestic and foreign investors, overconfidence had been proposed as one of the main factors which may trigger these scenes. Hence, it has been realized that overconfidence possesses potential value of research in the financial area, and gradually integrated into one of the most significant financial research projects.This paper will study the overconfidence in China Shanghai stock exchange by analyzing the investment return and trading volume in the market. In light with the theoretical research of Odean, The investors deem the high return of the investment is due to the outstanding investment strategies and inside information. This high investment return will further enlarge the trading volume in the market. Therefore, this paper will build hypothesis that overconfidence is common existed in China A-share market. Jointly analyzing the theories and market practice along with the study of the historical trading data in the market to further attest the hypothesis and summarize suggestion to the market participants and individual investors. Firstly, the paper learnt the literatures of both domestic and foreign overconfidence investment behavior in recent years. Secondly, the paper referenced a systematic analysis of stock market, select VAR vector regression model to detect whether overconfidence investment behavior existed in China stock market.In conclusion, this paper proves: 1. The existence of over-confidence in China A-share market; 2. The diversity of overconfidence in different stage of markets has been proved. Overconfidence scenario will be reduced since the market mechanism become more mature; 3. The investment market background will impact existence of overconfidence investment behavior, the investors are more confident in bull market.