Empirical Study on Representativeness Heuristic with A-share Price Performance in the Emerging Market of China

This paper aims to find extensive evidence about how psychological biases affect investor behavior and prices. Specifically, we examine pricing effects attributed to representativeness heuristic, which underlie many behavioral finance theories, in the emerging market of China. The contrarian effect of Shanghai Security Exchange (SHSE) A-shares is investigated using the sample data derived from the SHSE 180 index (from 1999 to 2003). With characteristics of SHSE A-share market, the pricing consequences of representativeness bias are described using trends and consistency of A-share price performance. Empirical findings confirm the significant contrarian effect in the emerging market of China. This evidence also points to misinterpretations of non-accounting based information as a source of the predictability.