Further Study Of The Behavior Of Individual Investors In China

Traditional finance has been mature on the whole after more than half century development. It tries to analyze financial market principle with the hypothesis of rational people. For the limitations of this condition, traditional finance was in dilemma once and again as to the exceptionalities emerged in investors and market. Behavior finance analyzes investors'actual behavior and adopts people's mental factors which play an important role in their decisions. So, it can preferably explain those phenomena which are inconsistent with traditional finance. Choice between selling and holding or selling and buying both are attractive aspects among investors'decisions. This paper can be divided into two parts: one presents investors'choice between selling and holding when facing winning and loosing, the other presents investors'choice between buying and selling before and after stock recommendations. Firstly, this paper makes a systematic review of prospect theory which includes people's mental elements of decision and three kinds of effect which respectively are certainty effect, reflection effect and isolation effect. Value function and decision weights function are presented too. The end of this part makes a simple statement on the contributions and limitations of prospect theory. Secondly, PGR and PLR indexes are used to study investors'tendency to choice between buying and selling winners or losers. The result shows that Chinese investors are liable to sell winners and hold losers, in other words they have disposition effect. Compared with other papers crossly, individual's disposition effect is stronger than market which is aggregate activities of people. Grouped by fund size, we find that small-scale investors demonstrate strongest disposition effect and there no significant difference between large and middle ones. According to what happened in Chinese market in the past years, two groups of records are drawn out to make a comparative study between good and bad policy environment. The result exhibits that disposition effect worked whether the policy environment was good or bad and it did more strongly when bad. Finally, a model is built to analyze the investors'tendency to buy or sell the stocks which are recommended by Chinese Security Daily in 2000. Trading records are provided buy a brokerage in Chengdu. We find that institution investors and some informed individual ones significantly present buying tendency in the weeks before both short-and middle-term stocks are recommended. The publication of those recommendations likely changes into an important signal of selling for institution...