The Characteristic Analysis And The Positive Feedback Mechanism Investigation Of The Noise Trade Based On Behavioral Finance

With the capital market coming into being , the Noise Trade emerged. However ,the traditional finance theory has been dominant for long time and set forth that : the rational arbitrage will smooth the price fluctuation and frustrate the irrational traders. Finally the irrational traders disappear in security market.Therefore noise traders were comprehended to be not considerable and could be neglected in making an asset price .In the 1980's,since the information economics was admitted by the mainstream economics school and the behavioral finance grown up and progressed, economists'researches for the investment behavior reach a new phase in the capital market. The irrationality and the finite rationality based on behavioral finance more accord with the practical investment behavior of the noise trader, thereby the noise trade theory has become a important ramification of the behavioral finance. At present, the domestic researches of the noise trade are involved in theoretic summarization and the investigative methods continue to use the information economics framework based on the rationality hypothesis. But the decision-making behavior and the mental character of the individual investor are rarely researched and analyzed systemically in the noise trade mechanism, and the special functions of the noise trade arisen by the irrational behavior are absently described systemically in the domestically rising security market. The paper based on the irrational behavior and psychology perceive bias theory , which come from the behavioral finance , makes use of the basic hypothesis and the above theory to detailedly analyze irrationally behavioral foundation and systemically explain the characteristic and the existent mechanism based on the finite rationality and the psychology perceive bias theory. Followed the above analyses ,the actuality and the characteristic of the noise trade are diagnosed and positively described in domestic security market, and the security price is ascertained to be the most important factor driving the noise trade in the local security market. Taken no account of the short hedge and supposed Rational Bubble Boundary, the positive feedback mechanism of Noise trade driven by the security price is theoretically analyzed and proved by DSSW model and Hirshleifer's results. Under the effect of the mechanism, conclusions are that the noise before the policy incident is influence on the noise trade markedly, the security market efficiency is depressed and the return is not matched the risk between the informed security dealers and general investors. Finally the systemic suggests of information open are proposed for the current noise trade actuality discussed above.