Research On The Irrational Bubbles Of Ordinary Residential Market Based On The Theory Of Behavioral Finance

The real estate industry is the main driving force of Chinese economic and has adirect effect on the development of Chinese economic. However, following theaccelerated process of urbanization, the scarcity of urban land has become increasinglyprominent and real estate prices in major cities rise sharply. This change leads to the factthat there are a large number of speculators to obtain excess interest, which may induceeconomic bubbles. Based on the investor psychology, behavioral finance studies theirrational investment behavior of investors, which provides theoretical support for theresearch on bubbles. This paper studies the irrational bubbles of ordinary residentialmarket based on behavioral finance theory.Firstly, this paper elaborates the definition of irrational bubble and analyzes thecharacteristics of ordinary residential product and the influence of land supply policieson bubble produce from the interior of ordinary residential market. Then this paperanalyzes the influence of repeat and frequent of government policies and excessivespeculation in the capital market on the bubble formation from the external of ordinaryresidential market. And it analyzes the promotion of cognitive biases and behavioraldeviation of the investors in residential market to the formation of irrational bubbles sothat it reveals the formation reason of the bubbles in residential market. Secondly, thispaper introduces the value function of expectancy theory and DSSW of behavioralfinance to build irrational bubble model and measure the degree of the irrationalbubble in ordinary residential price. Finally, this paper takes Xi’an as the example toresearch the irrational bubble of the residential market. Based on the analysis of ordinary residential market, this paper applies unit root test to determine marketeffectiveness and evaluates the irrational bubbles of residential market in Xi’an bycalculating the average in irrational bubble model of residential market. Through theresearch, it is revealed that the irrational bubble of ordinary residential market is oflong-term fluctuations in Xi’an and the degree of the irrational bubble is relatively low;there are more rational investors in ordinary residential market and the proportion ofnoise investors is low; the proportion of noise investors, cognitive deviation anddeviant behavior, noise information in the market have great effects on irrationalbubbles. At last, this paper makes some recommendations on regulation policy forgovernment according to the thesis results.