Bounded Rationality Of Investors And Securities Price Behavior Research

Since from Markowitz, modern finance formed a comprehensive framework of EMHby using of the "mean-variance" researching ideas and quantitative analysis method,and some important models such as CAPM, APT and BS model were established. Butwith the progress of the research, many market anomalies which can't be explained bythe EMH theory were found. Then, researchers began to reflect on the EMH theory,and proposed the most influential theory, behavioral finance.Behavioral finance theory did the research on investors' preference bias, belief biasand behavioral bias under the bounded rationality assumptions, pointing out the factthat the ordinary investors in the investment process systematically contraries to therationality assumption and will not use Bayesian rules for reasoning. Then, inbehavioral finance theory, the prospect theory was proposed to distinguish the SEUtheory in EMH theory for characterizing the utilities of investors.Based on the corresponding micro-assumptions about investors, scholars did lots ofresearches on securities' price behaviors, and then, gave some theoretical models suchas CAPM under the fully rationality assumption, noise trading price shocks modelunder the incomplete information, over- and under-reaction model of stock priceunder the bounded rationality assumptions, BAPM, and cohesive market hypothesisfrom the physical financial perspective.By all above, under the important assumptions that bounded rational investor seeksonly satisfactory solution instead of the optimal solution, we established the investorbounded rationality behavioral model based on the fuzzy math theory, depicting theutility function of the bounded rational investors by analysis their preference, beliefand behavioral bias. And then, we got the result that their utilities were affected bytheir total wealth level, current profit, historical profit margins, and reference returns.By establishing this model, we believe that the changes of investors' psychologicaleffects such as greed and fear will be the important reasons for investors' behavioralbias through the "reference return" factor affecting investors' decisions; their degreesof satisfaction will be changed by the changing of the market, and following withpositions changing of the risk securities investment; after a complete cycle of marketvolatility, bounded rational investors will suffer their inevitable losses; and there willbe a positive feedback process between the pricing changes of risk securities and thechanges of the investors' average positions, which will affect each other.In this paper, relative assumptions and conclusions of the model were tested byempirical testing and simulation research. The empirical research on net buyingvolume and the prices of stocks shows to us that in the logic, there was a significantlypositive correlation existed between the volatility of stock's price and the net buyingvolume. And MATLAB model of the simulation shows that in the market where theaverage positions have a positive feedback with the securities prices, most of theinvestors will get their inevitable losses and the words, "Minorities earning, majoritylosses" have its mean. Finally, we did the empirical test on investors' common investment strategies, whichmainly focused on momentum trading strategy and contrary investment strategy. Then,we got the result that long-term momentum trading strategy can not get obvious profitin China's securities market, while the long term contrary investment strategy can.