Research On Investors' Behavior In Security Market Based On Behavioral Finance

Behavioral Finance is a kind of science which researches the determinants of asset price, investor's behavior and other things in financial market by using psychological, sociological and anthropological methods. From the viewpoint of Behavioral Finance, investors are Bonded Rational and their determinations may be greatly influenced by such factors as psychology and mood. Professor A. Shleifer pointed that "We can not understand the price bubbles and other anomalies in capital market if we were regardless of investor's mood changes" (2002).This paper begins from Efficient Market Hypothesis. Then it analyzes the corrections of Behavioral Finance to EMH and Rational and Economic Person. It points out that investors are Bounded Rational and they have limited knowledge and limited computing ability.Noise Trading Model drops the hypothesis about Rational and Economic Person and suggests that there are noise traders and arbitragers in the market at the same time and the equilibrium situation is achieved by interaction between noise traders and rational arbitragers. Noise Trading Model interprets the closed-end funds discounts phenomenon in China well. It also proves that there is systemic characteristic of noise trading risk in China's closed-end funds market. In theory, the price mistakes from noise trading can be corrected by arbitrages. However, there are lots of limits factors for arbitrage.Positive Feed-back Trader is a special kind of Noise trader. They buy after price rises and sell after price goes down and therefore push up price and pull down it respectively. The Positive Feed-back Model founds that rational arbitrager will pick-up and buy more than he should have bought, which will push up stock price and make it fluctuates severely. Dynamic Autocorrelation Model revels that there is positive feed-back effect in Chinese stock market and there is obvious Co-movement connections between Positive Feed-back Trading and the stock price index changes. Herding Behavior is one of important reasons of Positive Feed-back Trading. As a rising market, the herding behavior index in Chinese closed-end funds market is one to two times higher than western mature markets.Behavioral Finance makes great contributions to China's stock market constructions and greatly illuminates Chinese investor for their investment strategies. China's stock market should strengthen its information exposure system, develop institutional investors, attract those big and blue chips which listed on overseas stock market and help small investor build up proper investment ideas. The Contrarian Trading Strategy which was advanced by Behavioral Finance is well practicable. The most important for investors is that they should pay more attention to psychological analysis and learn to control their own moods, which will help them to make correct determinations and improve their efficiency.