Empirical Study on Overreaction and Underreaction in Chinese Stock Market Based on ANAR-TGARCH Model
Author(s)
Yong Fang
ABSTRACT
An ANAR-TGARCH model is adopted in this paper. By using a first-order asymmetric autoregressive mean equation, we conduct a series of robust tests on overreaction and underreaction in the Chinese stock market by taking the abnormal value, run length, time scale, size, industry, , and market cycle into account. We then comprehensively compare the intensities of the first-order autocorrelation by using Wald coefficients tests. Results could provide strong empirical support for generating stock market investment strategies.
An ANAR-TGARCH model is adopted in this paper. By using a first-order asymmetric autoregressive mean equation, we conduct a series of robust tests on overreaction and underreaction in the Chinese stock market by taking the abnormal value, run length, time scale, size, industry, , and market cycle into account. We then comprehensively compare the intensities of the first-order autocorrelation by using Wald coefficients tests. Results could provide strong empirical support for generating stock market investment strategies.
Cite this paper
Fang, Y. (2013). Empirical Study on Overreaction and Underreaction in Chinese Stock Market Based on ANAR-TGARCH Model. Journal of Financial Risk Management, 2, 71-76. doi: 10.4236/jfrm.2013.24012.
Fang, Y. (2013). Empirical Study on Overreaction and Underreaction in Chinese Stock Market Based on ANAR-TGARCH Model. Journal of Financial Risk Management, 2, 71-76. doi: 10.4236/jfrm.2013.24012.
References
[1] Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision making under risk. Econometrica, 47, 263-291.
http://dx.doi.org/10.2307/1914185 [2] De Bondt, W. F. M., & Thaler, R. H. (1985). Dose the stock market overreact? Journal of Finance, 40, 793-805. [3] Thaler, R. (1985). Mental accounting and consumer choice. Marketing Science, 4, 199-214. http://dx.doi.org/10.1287/mksc.4.3.199 [4] De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990a). Noise trader risk in financial markets. The Journal of Political Economy, 98, 703-738. [5] De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990b). Positive feedback investment strategies and destabilizing rational speculation. Journal of Finance, 45, 375-395. [6] Barberis, N., Shleifer, A., & Vishny, R. (1998). A model of investor sentiment. Journal of Financial Economics, 49, 307-343.
http://dx.doi.org/10.1016/S0304-405X(98)00027-0 [7] Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor psychology and investor security market underand overreactions. Journal of Finance, 53, 1839-1886.
http://dx.doi.org/10.1111/0022-1082.00077 [8] Barberis, N., Huang, M., & Santos, T. (2001). Prospect theory and asset prices. Quarterly Journal of Economics, 116, 1-53.
http://dx.doi.org/10.1162/003355301556310 [9] Gervais, S., & Odean, T. (2001). Learning to be overconfident. The Review of Financial Studies, 14, 1-27.
http://dx.doi.org/10.1093/rfs/14.1.1 [10] Bacchetta, P., & Wincoop, E. V. (2008). Higher order expectations in asset pricing. Journal of Money, Credit and Banking, 40, 837-866.
http://dx.doi.org/10.1111/j.1538-4616.2008.00139.x
[1] Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision making under risk. Econometrica, 47, 263-291.
http://dx.doi.org/10.2307/1914185 [2] De Bondt, W. F. M., & Thaler, R. H. (1985). Dose the stock market overreact? Journal of Finance, 40, 793-805. [3] Thaler, R. (1985). Mental accounting and consumer choice. Marketing Science, 4, 199-214. http://dx.doi.org/10.1287/mksc.4.3.199 [4] De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990a). Noise trader risk in financial markets. The Journal of Political Economy, 98, 703-738. [5] De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990b). Positive feedback investment strategies and destabilizing rational speculation. Journal of Finance, 45, 375-395. [6] Barberis, N., Shleifer, A., & Vishny, R. (1998). A model of investor sentiment. Journal of Financial Economics, 49, 307-343.
http://dx.doi.org/10.1016/S0304-405X(98)00027-0 [7] Daniel, K., Hirshleifer, D., & Subrahmanyam, A. (1998). Investor psychology and investor security market underand overreactions. Journal of Finance, 53, 1839-1886.
http://dx.doi.org/10.1111/0022-1082.00077 [8] Barberis, N., Huang, M., & Santos, T. (2001). Prospect theory and asset prices. Quarterly Journal of Economics, 116, 1-53.
http://dx.doi.org/10.1162/003355301556310 [9] Gervais, S., & Odean, T. (2001). Learning to be overconfident. The Review of Financial Studies, 14, 1-27.
http://dx.doi.org/10.1093/rfs/14.1.1 [10] Bacchetta, P., & Wincoop, E. V. (2008). Higher order expectations in asset pricing. Journal of Money, Credit and Banking, 40, 837-866.
http://dx.doi.org/10.1111/j.1538-4616.2008.00139.x