Human behavioral dynamics and stock return movements: Evidence from China

Jie Peng ()

Edelweiss Applied Science and Technology, 2025, vol. 9, issue 2, 670-681

Abstract: This paper develops an analysis framework based on the principle of human behavior dynamics and the jump-diffusion process. Based on empirical tests on Chinese stock markets, the paper reveals a negative correlation between jump levels in the previous month and stock returns in the following month. On average, an increase of each 1 unit in the value of the jump component results in a lower subsequent stock return of 58 basis points. Moreover, the long-short arbitrage portfolios based on jump levels perform better than the market portfolio; the Sharpe ratio is 4 times that of the market index, indicating that jump-based trading strategies have a great ability to pursue abnormal returns.

Keywords: Chinese stock market; Human behavioral dynamics; Jump-diffusion process; Portfolio strategies. (search for similar items in EconPapers)
Date: 2025
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