Research Of Behaviors Of Security Investment Based On Behavioral Finance

Traditional finance theory analyzes the behaviors of security investment based on the hypothesis that investors are rational and thus forms such theories as Modern Portfolio Theory, Efficient Market Hypothesis and Capital Asset Pricing Model etc. However empirical researches such as the riddle of bonus, the over-reaction and under-reaction of stock price, the acute fluctuation of stock price bring great challenge to it, and there are many defects on its fundamental theory, too.According to the relation of psychology and behaviors of investors Behavioral finance argues investors have some cognitive biases and security investors' behaviors aren' t rather completely rational, on which the behaviors of security investment are analyzed. In the wake of the analysis come the theories, such as the Prospect Theory, Behavioral Portfolio Theory and Limit to Arbitrage Theory. Thus the analysis to security investors' behaviors more accords with the practice.The paper analyzes the investment behaviors of investors in China by means of Behavioral finance. The investors have same psychological characteristics such as over confidence, following the masses , and they also aren' t completely rational. The limit to arbitrage, "herd behavior" and disposition effect are their obvious performances. The paper analyzes these in detail. The research of behaviors of security investment brings us significant insight to the construction of security market and the selection of investment strategy of investors.