The Impact Of Personality And Eomotions On Investment Decision Making During Stock Investment Activities

Classical finance, taking investors’rationality as the basic assumption, completely excludes the effect of irrational psychological factors. However, it fails to reasonably explain behavior anomalies in the actual stock market, such as disposition effect and overtrading. Behavioral finance, taking investors’ irrationality as the basic assumption, introduces psychological variables and promotes scientific research into stock investment behavior. The prospect theory, the core theory of behavioral finance, mainly discusses the "human nature" of decision-makers in the actual decision-making process. However, the prospect theory also meets a difficult problem which can only explain the decision-making behavioral pattern of some investors. According to literature review, in exploring the influence of psychological factors on investment behavior, behavioral finance mainly uses substitutive variables and cannot explain the human nature of stock investors. Based on personality psychology and Affective Event Theory, this study adopts the psychological research paradigm to discuss the influence of personality traits and emotions on stock investment behavior, trying to reflect more "real" behavior pattern of natural investors.As a financial activity involving a series of investment decision-making behavior, stock investment provides a research platform for more clearly observing investors’behavior change and studying the behavior pattern of investment decision makers. This study first summarizes relevant literatures about factors affecting stock investment behavior and constructs the psychology-based stock investment behavior mechanism model which based on the investment behavior decision-making model and Affective Events Theory about emotional influence mechanism.Then with the help of the financial laboratory’s simulated stock trading system, it adopts the behavioral experiment method to control the interference factors, forming the situation of intervening in the continuous rise and fall of stock price. Using629undergraduate students from16colleges and universities on Xueyuan Road as subjects, the study systematically explores the influence of personality and emotion on stock investment behavior:(1) It examined the influence of personality traits on investment behavior in the stock price rising and falling situation. First of all, it examined whether there exists irrational behavior in the stock market and tested the moderating effect of the big five personality traits on market behavior anomalies (disposition effect and overtrading) in the stock price rising and falling situation.Secondly, it examined the relationship between big five personality traits and income from securities investment. In addition, it further explored the influence of another variable differentiating individual behavior difference, approach and avoidance traits, on the investment decision-making behavior.(2) Based on Affective Event Theory, it examined the emotional intermediary mechanism in which personality traits affect stock investment behavior in the simulated stock trading platform.(3) It explored the influence of the general state of mood, the emotions induced by irrelevant events and the emotions experienced in stock price continuously rising and falling situation on investment behavior. In addition, it thoroughly studies the influence of specific emotions on investment behavior and examines the moderating effect of emotional intelligence.The major results include:(1) Through literature review we builded the stock investment behavior influence mechanism model based on personality and emotional variables, providing theoretical framework for follow-up research.(2) We found that the moderating effect of big five personality traits and approach and avoidance traits on stock investment behavior anomalies, making up for the prospect theory’s deficiency of failing to cover all people in explaining investors’ behavior pattern in face of loss in revenue and at the same time explored the correlation between big five personality traits and approach and avoidance motive traits and investment behavior, enriching the achievements in personality trait research.(3) We found emotions either interacts with personality to affect investment behavior or mediates the influence of personality traits and emotions play more significant role in affecting investment behavior, breaking through the limitation in previous study of finance in which due to inability to really explore natural emotions of human beings which were used to replace variables and meanwhile making progress in exploring the relationship between emotions and personality.(4) We found the rising and falling situation could moderate the influence of mood on investment behavior, but could not moderate the influence of induced emotions on investment behavior. Differently valenced emotions induced by the stock price rising and falling situation have different effects on investment behavior. The behavior of investors who had experienced certain specific emotions was significantly different from that of those who had not experienced these specific emotions. In addition, we further found in the stock price unilaterally rising situation investors had more specific emotions such as being concentrated, energetic and vigorous while in the stock price unilaterally falling situation investors had more specific emotions such as being sad, distressed and guilty. Meanwhile we found individuals with high emotional intelligence were less influenced by emotions than those with low emotional intelligence.Finally, The implications of these results for more effective investment strategies are discussed, and the limitations of this study are pointed out.