Based On Behavioral Finance Theory Of Individual Investors To Invest In Behavior Research

Traditional finance theories assume that financial market participants are perfectly rational and argue that the financial market is always efficient. Efficient Market Hypothesis reached the height of its dominance in academic circles around the 1970s. Faith in this theory was eroded by a succession of discoveries of anomalies, many in the 1980s, and of evidence of excess volatility of returns. Quantitative researches indicate that there exists much difference between investors' behavior and the conclusions based on the premise of the above theories: investors have inherently cognitive biases, such as representative bias, mental accounting, loss aversion, disposition effect and overconfidence. Finance literature in this decade and after suggests a more nuanced view of the value of Efficient Market Hypothesis, and, starting in the 1990s, a blossoming of research on behavioral finance has begun and is forming a complete theoretical system gradually. Behavioral finance argues that some financial market phenomena can plausibly be understood only under the assumption that some market participants are not fully rational. Compared with the rational analytical frame of standard financial theory, behavioral finance pays much attention to a person's real psychology and economic behavior, which offers a realistic guidance for financial decision.According to the Wind information, up to October 24, 2007, the amount of individual investors in our country reaches to 129,994,660, accounting for 99.64% of the total amount; while the amount of institutional investors is 473,800, only for 0.36%.In other word, the fact that individual investors in our country share the overwhelming majority of total investors has not yet changed. And their inherent cognitive biases have great impact on security market. Therefore, it's high time to study Chinese individual investors' behavior. Firstly, this paper discusses different psychologies and behavioral biases of investors systematically on the basis of the theories of behavioral finance. Secondly, according to two questionnaire surveys: "the Psychics Survey to Chinese Investor" and "the Survey of the Influencing Factors of Investment Behavior of Individual Investor", unifying the research techniques with the quantitative analysis and the qualitative analysis, this discovers that there are many kinds of cogitative biases in the investment behavior of Chinese investors, including: "Overconfidence", "Loss Aversion", "Mental Accounting", "Hindsight" and so on; In the meanwhile, this paper discovers that there are mainly five factors which affect Chinese investors' behavior: the individual factor, the macroscopic environmental factor, the information acquisition factor, the company quality factor and the market factor. Overwhelming majority investors see the changing policies established by the government as the primary factor, which affect both individual investors' behavior and stock market.That is to say, the individual investors in our country have serious "Psychological dependence" on government policy.Finally, from the angle of protecting the benefit of individual investors, this paper makes some suggestions aimed on investors' cognitive bias and the influencing factors.