Abstract
This paper provides empirical evidence on the role of fundamentalists and technicians in the Chinese stock market. Three econometric models are used to differentiate the stock price effect between the actions of traders who act on the basis of fundamental analysis and those acting on the basis of technical analysis. The models are estimated using randomly selected monthly and daily data on the stock prices of one hundred companies listed on the Shanghai Stock Exchange. The results reveal that both fundamentalists and technicians have roles to play in stock price formation, although technicians appear to play a more important role. This result holds even if the government intervention is allowed for. Some explanations are presented for the dominance of technicians.
Highlights
The objective of this paper is to present empirical evidence on the role played by fundamentalists and technicians, as market analysts, in the Shanghai stock market
The evidence is based on three versions of the model proposed by Moosa and Korczak (2000) and Moosa and Al-Loughani (2003), which follows, in part, the model proposed by Frankel and Froot (1990) to differentiate the roles played by fundamentalists and technicians in the foreign exchange market
The modification of the basic version of the model is takes into account two issues: (i) the possibility that the price effect measures may be sensitive to the specification of the reaction function of the technicians, and (ii) the role of government intervention in stock price determination, the latter being a potential factor in this
Summary
The objective of this paper is to present empirical evidence on the role played by fundamentalists and technicians, as market analysts, in the Shanghai stock market. The evidence is based on three versions of the model proposed by Moosa and Korczak (2000) and Moosa and Al-Loughani (2003), which follows, in part, the model proposed by Frankel and Froot (1990) to differentiate the roles played by fundamentalists and technicians in the foreign exchange market. Modelling the behaviour of technicians and fundamentalists in the Shanghai Stock Market: 1-36 market. If the current price is above its equilibrium level, the asset is sold, which should lead to a decline in the price. This is not necessarily the case, . The same argument is valid if the price falls below its equilibrium level
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