A Study On The Short-term Overreaction Of China’s Sse A-share Market Under Major Events

As the main index to describe the overall performance of the stock market,the return and volatility series of the stock index imply all kinds of information of the stock market.In general,the stock index tends to be small and stable changes,but under the impact of major events,asset prices jump or fluctuate violently,causing overreaction and increasing market risk.This is extremely detrimental to investors,risk management departments and government regulators.This paper focuses on the short-term overreaction of China’s SSE A-share market after major events.Firstly,the research results of domestic and foreign scholars in overreaction are reviewed and combed;Secondly,the variable parameter dynamic VaR model under rolling window is used as a method to determine the date of major events.And further screen and match the corresponding major events,this method is the optimization of the original method,which is helpful to make up for the shortcomings of the fixed threshold method and the mean standard deviation method;thirdly,This paper uses the theory of traditional finance and behavioral finance to sort out the causes and paths of overreaction,and then uses the method of event study to make an empirical analysis of the short-term overreaction in China’s SSE A-share market.In order to more comprehensively compare the short-term over-reaction differences of the stock market under different major event types,and the entire major event sample is based on whether the event is positive or negative,Whether the event is during the economic crisis,whether the implementation of the price limit system,whether there are other major events in the inspection period or in the formation period of the event day,etc.;Finally,A three-factor model is used to verify whether the change of risk factors is the main cause of short-term overreaction in the market.The research shows that China’s SSE A-share market has a significant short-term overreaction under major events,and has obvious asymmetry.The short-term overreaction characteristics of the market are slightly different under different types of major events,including negative events,events during the economic crisis and non-economic crisis,events before and after the implementation of the price limit system,non-overlapping events,and reversal events.By constructing the reverse strategy portfolio,we can get the extra rate of return which exceeds the market performance,which is better than the buy-and-hold strategy.On the contrary,the stock market did not have a significant overreaction under the influence of positive events and momentum events.The reversal strategy had a positive rate of return,but did not significantly beat the market.Three-factor model can explain the overreaction,but it is not the main reason for the short-term overreaction of the market.For the three-factor model,the coefficient of the scale factor is significantly positive in the four cases,such as all sample,major negative events,events in economic crisis and reversal events,which indicates that in these cases,small-scale stocks are more sensitive to major events and more prone to overreaction;the coefficient of the book-to-market ratio factor under most event types is significantly negative.It shows that stocks with low book value are more likely to overreact than stocks with high book value.In summary,investors in the SSE A-share market have irrational behaviors,and short-term overreaction will occur under the impact of major events,which provides new empirical evidence for behavioral finance.At the same time,it is also helpful for investors to improve the trading system and formulate a more reasonable investment strategy according to the characteristics of overreaction.