The Analysis, Based On Behavioral Finance Theory Of Chinese Stock Market, Individual Investors' Behavior

Behavioral finance focuses on the investors' psychology and their biases in the process of decision making under uncertainty. The rising of behavioral finance, which assumes the investors to be irrational and psychologically biased, challenges the domination of EMH, and starts a methodological revolution in the field of finance. Although behavioral finance is still in its infancy, it has presented financial economics with a new body of theory, a new set of explanations for empirical regularities, as well as a new way to predict. As an emerging stock market, in China the individual investors accounted for a large proportion. Therefore, it is meaningful for researching domestic securities market to study individual investors'behavior while they buy and sell the stocks.This paper mainly explores the content of irrational behaviors of an individual investor and its possible bias from irrational behavior. In chapter 2, I introduce the Prospect theory, the Heuristic and some behavior biases in decision making under uncertainty which are foundation theory in behavioral finance. Chapter 3 is a cognitive and behavioral investigation which comes from psychological questionnaires to domestic individual investors. The result shows most individual investors in China have somewhat cognition biases regardless their gender, age and education background. Chapter 4, base on field research, aims at to disclose the reference point and frame dependence of individual investors while their decision making in stock market as well as their mentality and behavior in every stage of the market. At the same time, it gives positive analysis to investigation result in chapter 3. In the behavior biases, to prove one's strength, seek training opportunity, reference group and independence are few to be mentioned in present literature. Self-control is significant to individual investor. Chapter 5 shows two paths that include the external environment factors and the investors themselves psychological factor to regularize the investing behavior in domestic securities market. The former is mainly discussed from countries, supervision, information disclosure, the securities intermediary and corporate governance. To the latter, developing a good psychological quality is given.