An Empirical Study On The Overconfidence Of Investors In Chinese Futures Market

The “strange phenomenon” which is not explained by the modern financial theory inthe financial market has been a hot issue of the academic research. But behavioral financechallenging for the two traditional assumptions (behavioral assumptions and effectivecompetition in the market) provides a new perspective for scholars to study the investmentbehavior in financial market. In the context of Chinese futures market booming, we furtherstudy the “strange phenomenon” in the market, so that investors can have more efficientinvestment decisions and Chinese futures market can have a sustained and stabledevelopment. Based on the overconfidence theory of behavioral finance, make thecomparing of investors trading times as the breakthrough point, at first, we employed astatistical analysis method to group based on the investor’s trading frequency, andaccording to the result of the grouping analysis, we employed the statistical method, R/Sanalysis, a GARCH model and liquidity ratio to study the impact of investors’overconfidence on trading volume, volatility, market efficiency and market liquidity.Through the empirical study we reached the following conclusions:Firstly, the degree of overconfidence and investors’ trade frequency presents inversed“U” curve; and then we got most of investors who just enter the futures market areoverconfidence, and only a small part of investors’ overconfidence psychology is notobvious; when the futures market is in the downturn, investors can reduce overconfidenceand make the loss (gain) controlled in the minimum (large) range. Secondly, theoverconfidence psychology’s formation requires a certain time, and in the rise and falltrend of the market, the investor’s overconfidence is asymmetric. Thirdly, the impact ofinvestors’ overconfidence on market: increasing the trading volume and decreasingearnings; making market less efficient; increasing the volatility of market; the effect on theliquidity of market is no significant. Fourthly, some degree of overconfident investors cansurvive in the market.Finally, through the empirical analysis we propose suggestions from the aspect ofinvestors own ability awareness, the enhancement of professional knowledge and tradingstrategies, the training of trading mentality and the training and guidance of the relevant agencies, which is meaningful for investors to set up rational investment expectancy,reduce blind investments, and ensure the stable and healthy development of Chinesefutures market essentially.