Behavior Research On The Individual Investors Of Chinese Stock Market

The theory of behavioral finance comes into being with the challenges and queries to the modern financial theory. Based on psychological experiments, behavioral finance analyzed different kinds of investor's mental characteristics and use these results to study investor's decision-making process as well as its impact on the assets pricing. From the behavioral analysis of the connections between investors' behavior and the fluctuation of stock price, we can get a clue that investors' behavior is the key factor to influence stock prices. That's because most of investors are irrational. Because of different reasons, Individual Investors lack the abilities to analyze or process the already known information, which has a negative impact on the connection between information delivery and price fluctuation. Considering Chinese stock market is still young, its structure and supervision system are not quiet sound, which lead to high degree of investors' unreasonableness. Therefore it is a necessity to study Chinese investors' behavior through the theory of Behavioral finance. This article made a review in the behavioral research of investors in stock market. Firstly, we give readers the clear understanding of the research field under the theory of Behavioral finance. Then we adopt the overseas comparatively sound research methods —psychological experiments and empirical study. We analyze Chinese investors' mental bias and decision-making behaviors and draw conclusions. This article also puts forward some investment strategies for the individual investors.According to the psychological experiments targeting on the individual investors of Chinese stock market, we found that when at face of risk choice, the tested investors have familiar cognition bias which include obvious overconfidence, ambiguity aversion, lost-averseness as well as anchoring and adjust. Informed by that, we can deduce that when making a decision, Chinese investors have analogical mental biases as which had been found abroad. However, because of the difference in economy and culture environment, the degree in mental bias is different. Then, backed up by statistics in Chinese stock market, this article takes metric tests to the assumptions of overconfidence and deposition effect. The result proves overconfidence do exits in Chinese stock market and its degree will be different on ascending anddescending period. The result also shows that Chinese investors have stronger deposition effect than overseas investors, but the effect has not seasonal phenomenon that has been found in United States stock market.Finally, this article gives detail analysis to some behavioral investment strategies such as contrarian investment strategy, momentum investment strategy and small company investment strategy and so on. Some of them are good examples to learn for investors while some others need more perfection. Different strategies should be used in different market environment. This article also discussed the influence of investor behavior to company finance and supervision policy. We found that in China when making policy, the government and listed companies should consider over the behavioral bias of individual investors.This article just tries to make pilot study to the investors' behavior of the Chinese stock market. The fields of the influences thrown to investors by exterior factors such as supervision policy, information environment, social culture etc. and the influence thrown to assets pricing by investors' behaviors still need much profound study .