An Empirical Analysis of Investor Overconfidence in the Chinese Stock Market

This paper focuses on individual investors and institutional investors in China's share market to examine whether overconfidence exists in both categories of investors. Using the findings of scholars such as Gevais and Odean (2001) and Statman (2006) as a theoretical basis, a comparative study of the two categories of investors in share market was conducted using empirical analysis. For the empirical study, this paper takes a sample of individual stocks in China's share market between 2017q1 and 2021q4, and stock sample is separated into two sets based on institutional holdings: high and low to measure the characteristics of institutional and individual investors' dealing behavior, respectively. Considering the impact of market capitalization size on the research questions, the stocks are first divided according to the size of market capitalization into portfolios of different sizes. In terms of empirical analysis, this paper establishes the regression equation of historical market returns and present trading volume based on overconfidence effect model proposed by Statman, Thorley (2006), and the Wald test demonstrates a positive causal connection between these two, which indicates that both individual and institutional investors are overconfident. However, the results of the differential overconfidence regression among individual and institutional investors demonstrate that there is no significant difference in overconfident behavior of the two categories of investors in China's share market, a result that differs from Chuang and Susmel (2011).