A Study Of The Investor Behavior Base And Investment Strategy

While studying investment behavior, the classical finance theories taking effective marketplace theory as representative theory, suppose the ideal market and the reason investor, then inquiry what investors should do to make the optimal decision .It is a kind of method which is from the ideal to the real. But large amount of demonstration researches indicate, because of inherent cognition biases, people are not always completely reason so the real investing decision process and decision-making result are very different from the optimal decision models in the classical finance theories, showing for various financial anomalies. But behavioral finance theories have broken the limitation of the classical finance theories, taken psychology into the analysis of investors' behavior and pointed out the investor are bounded rationality. On this basis, the studying of investor's decision-making is developed.Based on the analytical framework of behavioral finance, this paper has analyzed and explained the abnormal phenomena of investing behavior on basis of research results in psychology and praxiology .The paper also has summed up investment strategies being guided by behavioral finance theory and the application of these strategies and has analyzed the feasibility and prospect of these strategies in our country. The paper can be divided into four parts:The first part briefly introduces the theory about the psychology and behavior of the limited rational individual in the psychology and praxiology. And point out because of the insufficiency of information, resource and ability, people frequently appear systematic cognitive biases in judgment and decision-making, includes: heuristic bias, framing dependence and mental account. This kind of inherent cognitive biases can affect person's decision-making process, and causes its decision-making to stray from the rational track. Investor's limited rationality in the financial market can register as overconfidence, over-\under-reaction and regret aversion. Moreover investor's cognitive and behavioral biases will be more obviously in weak-effective market.The second part discusses the behavioral biases in finance which the classical finance theories are unable to explain. But we can analyze and explain them from the angle of inherent cognitive and behavioral biases. In the property choice behavior, ambiguity aversion causes the investors' portfolios of financial assets to present pyramidal, and appear the phenomenon of insufficient diversification. And Representativeness bias makes the investor irrational in the investment choice. In the investing transaction behavior, overconfidence causes investors to transact frequently. As a result, high transaction costs bring serious losses to their wealth. In business decision-making process, the loss aversion and regret aversion enable investors to hold the lossed stock for a long time, but sell the profitable stock quickly.The third part summarizes several kinds of investment strategies being guided by behavioral finance theory. The essence of this kind of investment strategies is: making profit for a long time by the mispricing which is caused by behavioral biases in finance. The main investment strategies includes: small company investment strategy ,which is to choose the valuable stock of small companies ;contrarian investment strategy, which refers to purchasing the stock that have displayed badly for 3-5 years and selling the stock that have displayed outstanding in the same term; momentum investment strategies,which is to set up "screening conditions" about the earning ratio and transaction volumes, and purchase or sell when those conditions satisfied; "stopping damaging point " strategy, which is aimed at the disposition effect in financial market, and the process is that setting up a reasonable profit or loss point firstly, when the stock price rise or fall to this point, the investor will immediately sell or buy the stock; focus investment strategy, which is to choose several stocks whose earning ratios are able to higher than average revenue in long-term investment ,then concentrate major part of capital on these stocks ,and no matter the prices in stock market rising or falling, persist in holding those stocks.The fourth part introduces the application situation of behavioral investment strategies in the oversea, and discusses the feasibility of these investment strategies in our country, according to the actual performance of financial market. More and more funds and investment companies have already used behavioral investment strategy to guide their investing behavior in the oversea and have obtained good effect. This article takes the Fuller&Thaler Asset Management and the investment idea of Warren Buffett as an example, and introduces the application of behavioral investment strategies in the oversea. Moreover this article analyzes the present situation in our stock market, and regards our stock market as a weak-effective market with several problems. In this kind of market, behavioral investment strategies, especially contrarian investment strategy, have great development space. But we still should explore investment strategies adapting to the operational features of our financial market, and establish some independent organizations to provide the paid information, which provide great convenience for the application of behavioral investment strategy in China.