Stock Market Investor Behavior Based On Behavioral Finance Research

Behavioral finance has become a hot spot issue in the field of international finance in recentyears. It draws on the research findings of psychology, behavioral science, and social studies, andsystematically studies investors' investment decision acts under non-rational assumptions as wellas their impact on asset pricing.The thesis, which finds its footing in the study of finance, takes stock market investors asobjects of study, and keeps its relevance in the realities of the Chinese stock market, makes acomprehensive exploration into investors' sentiment influences on stock market returns andfluctuations, the discount of close-ended funds, the impact of "policy market" on investorbehaviours, and some investment strategies in the application of behavioral finance.Firstly, the thesis uses the "Good Light Index" published by the magazine Dynamic Analysisof Stock Market to create the Investor Emotion Measuring Indicator (including short-term andmedium-term indicators), and construct a VAR model for the purpose of making an empiricalstudy of the relationship between the Chinese stock market's returns, volatility and investorsentiment.Through Granger causality test, it established the fact that short-term and medium-terminvestor sentiments are the Grand reasons affecting the changes in the large, medium andsmall-cap stocks in the A-share stock market.Without a strict statistics probability, medium-term investor sentiment can affect the changesin the future yields of the stock market, and has its certain predictive values, while short-terminvestor sentiment can play the role of a contrarian indicator with regards to expectations for stockmarket returns.Secondly, the thesis made a relatively systematic analysis of the reasons behind the formationof China's "policy market", and conducted an empirical analysis of the influence of policy factorson individual investor behaviours in China, mainly from the perspective of trading volume andtrading frequency. Empirical results show that the policies, no matter "good" or "bad", all bearnotable influences on investors' trading frequency and trading volume, and have a direct impact oninvestors' trading activity and willingness to buy or sell.Chinese investors have responded to the policy factors with "policy-dependent deviation",namely, the alternate occurrence of non-rational sentiments such as "excessive greed" and"excessive fear".Thirdly, the thesis studied the "mystery of the discount" of Chinese close-end funds andanalyzed the influence of institutional investors' non-rational behaviour on stock marketinvestment. Empirical study shows that a reasonable explanation of the discount of close-endfunds could be made by using the LST theory of investor sentiment and "noise traders".The close-end fund discount linkage and high correlation have reflected the non-rationalchanges in the sentiment of a "noise trader". However, in recent years, with the gradual weakeningin statistics of the correlation between close-end fund discount and stock index, it is no longerideal to make market predictions by using traditional close-end fund discount indicators. It is dueto a tendency of close-end funds being marginalized by the market, resulting from the rapiddevelopment of open-end funds and the subsequent decrease in the number of tradable close-endfunds. The thesis will help investors identify themselves, correct or reduce the irrational behaviour,and provide references for investors to utilize the theories of behavioral finance, chooseinvestment strategy and gain surplus returns.