Analysis of the causes of asset pricing anomalies in the Chinese stock market from the perspective of behavioral finance

Donghao Liu

doi:10.54097/3pn97f37

Authors

Donghao Liu

DOI:

https://doi.org/10.54097/3pn97f37

Keywords:

Behavioral finance, Chinese stock market, Asset Pricing Anomalies, Investor psychological bias, Market structure optimization

Abstract

The long-term existence of asset pricing anomalies constrains the efficient operation of the Chinese stock market, and traditional financial theory is based on the core assumption of complete rationality, making it difficult to provide a reasonable explanation for such market anomalies. Behavioral finance theory breaks through the rational person analysis framework, starting from the irrational behavior of investors, and provides a new research path for analyzing the formation mechanism of asset pricing anomalies. This paper takes the Shanghai and Shenzhen stock markets as the research object, and combines authoritative data from the Securities Association of China and the Wind Database from 2016 to 2025 to sort out typical pricing anomalies such as low Beta, low-volatility anomalies, and ESG. The causes of anomalies are systematically analyzed from the dimensions of investor psychological bias, the contagion of herd behavior, and market structure defects. Research has found that irrational decision-making behaviors such as investor lottery preferences and anchoring effects, combined with the market structure dominated by individual A-share investors and agency problems of institutional investors, collectively lead to asset prices deviating from their intrinsic value. This study can provide empirical support for regulating market pricing order and guiding rational investment, and help promote the high-quality development of China's stock market.

Downloads

Download data is not yet available.

References

[1] Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2006). The cross‐section of volatility and expected returns. The journal of finance, 61(1), 259-299.

[2] Barberis, N., & Huang, M. (2001). Mental accounting, loss aversion, and individual stock returns. the Journal of Finance, 56(4), 1247-1292.

[3] Jansen, M., Swinkels, L., & Zhou, W. (2021). Anomalies in the China A-share market. Pacific-Basin Finance Journal, 68, 101607.

[4] Chui, A. C., Subrahmanyam, A., & Titman, S. (2022). Momentum, reversals, and investor clientele. Review of Finance, 26(2), 217-255.

[5] Stambaugh, R. F., Yu, J., & Yuan, Y. (2012). The short of it: Investor sentiment and anomalies. Journal of financial economics, 104(2), 288-302.

[6] Frydman, C., & Wang, B. (2020). The impact of salience on investor behavior: Evidence from a natural experiment. The Journal of Finance, 75(1), 229-276.

[7] Jones, C. M., Shi, D., Zhang, X., & Zhang, X. (2025). Retail trading and return predictability in China. Journal of Financial and Quantitative Analysis, 60(1), 68-104.

[8] Han, C., & Shi, Y. (2022). Chinese stock anomalies and investor sentiment. Pacific-Basin Finance Journal, 73, 101739.

[9] Barber, B. M., & Odean, T. (2008). All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. The review of financial studies, 21(2), 785-818.

[10] Ben-David, I., & Hirshleifer, D. (2012). Are investors really reluctant to realize their losses? Trading responses to past returns and the disposition effect. The Review of Financial Studies, 25(8), 2485-2532.

[11] Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of accounting and economics, 31(1-3), 405-440.