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Human behavioral dynamics and stock return movements: Evidence from China

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  • Jie Peng

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.

Suggested Citation

  • Jie Peng, 2025. "Human behavioral dynamics and stock return movements: Evidence from China," Edelweiss Applied Science and Technology, Learning Gate, vol. 9(2), pages 670-681.
    • Handle: RePEc:ajp:edwast:v:9:y:2025:i:2:p:670-681:id:4569
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