Overconfidence Demonstration Analysis Of China Security

Along with the development of security market, the conflict between the reality of the security market and the traditional theory of finance has been occurring. "Anomalies" that can not be explained by the traditional theory occurred in the stock market. The theory of behavioral financial fused the cognitive psychology and the traditional theory of finance together to re-examine the prices and interpret these "anomalies".Extant studies have shown that many behavioral finance models based on the overconfidence assumption of investors can be used to explain some financial anomalies such as the volume and the volatility puzzle, the long- term reversals effect of asset returns and the short-term momentum effect of asset prices, all of which are not able to be explained by classical financial theories. Also some empirical and experimental researches on securities markets of western developed countries have verified the existence of investors' overconfidence in financial markets. Accordingly , De Bondt and Thaler(1995) even stated that "perhaps the most robust finding in the psychology of judgment is that people are overconfidence." As a result, in recent years, overconfidence models have been widely applied in the behavioral finance economists and have become one of the focuses and standard assumptions of financial economists.This paper studies the two topics of the most attractive items of behavior financial theories. One is overconfidence and self persuasion, the other is the study on overreaction. Based on DHS model and income effect, This paper studied impact of overconfidence on the expected return and risk of security market investment. This paper also studied the overreaction phenomena of China stock market.