Font Size: a A A

Contrary Investment Strategy And Momentum Trading Strategy Based On Behavioral Finance

Posted on:2014-06-19Degree:MasterType:Thesis
Country:ChinaCandidate:D FengFull Text:PDF
Abstract/Summary:PDF Full Text Request
Since the late1970s, the research of Economics, Finance and Psychology, Management science has a trend of merging. The rise of Behavioral Finance is the evidence of this trend. As an emerging discipline, Behavioral Finance grows up from the interpretation to the irrational phenomenon on the financial markets. Behavioral Finance has summarized a series of studies on the investor decision-making activities from the point of view of the irrational people, particularly on investment strategy which is highly practical.At this stage, China’s securities market is immature, non-standard, with a lot of irrational phenomena. The study of Behavioral Finance theory has a strong guiding role to our securities market. Western scholars have already done a lot of empirical analysis of the irrational phenomena and behavioral investment strategy. However, due to some factors such as culture, policy, differences between investors, the cognitive and behavioral biases of investors in our country is different from the mature market investors. Irrational phenomena is different, either. This lead to the selection and implementation of the investment strategy is vary with western scholars. Therefore, investment strategy based on Behavioral Finance research need more evidence from our market, which constitutes the background and significance of this research.This paper studies the securities investment strategy based on Behavioral Finance. The empirical data is from the Shanghai A shares. The research idea in this paper is based on the irrational behavior of investors as the main line. First we review the literature discussed the irrational phenomena and behaviors investment strategy at home and abroad and summarize the achievements and problems of the existing literature research. We also point out the difference between this paper and the previous literature, which is the innovation of this paper. Then we introduce the content of Traditional Financial theory and Behavioral Finance theory in investment strategy, point out that the problem of the traditional financial theory and lead to the significance and achievements of Behavioral Finance in practice. Second, we analyze the irrational phenomena of the stock market in China, which is noise trading, overconfidence and herding effect. This paper does an empirical test of noise trading and investor overconfidence. At last, we get a conclusion about the irrational phenomena of our stock market, which shows that our investor overconfidence phenomenon is not serious.The paper selects the contrary investment strategy and momentum trading strategy to do empirical study. We select the yield data of A shares from Shanghai Stock Market from July1,2009to June30,2012. Then we set up the formation period and test period. The formation period is including three months and six months. The test period is the span of33months, and the inspection interval is three months. After analyzed the yield of four portfolios, we find that the contrary investment strategy is effective and the formation period is3-6months, the test period is1-2years. The momentum trading strategy is not effective, because the interval of test period. If we can use one month as the interval, the momentum trading strategy may be effective, which we hope can be confirmed in subsequent studies.In the end, we propose some attentions of using behavioral investment strategy. First of all, we must adjust the appropriate investment strategy with the changing of China’s securities market. Second, investors must choose investment strategy according to their behavior. Because the difference between each investors, when facing with the same information, investors react differently.Behavioral investment strategy research is quite necessary for our immature market. This paper does the empirical analysis of the contrary investment strategy and momentum trading strategy in our country’s application. Although we get a conclusion consistent with the theory, there are still many problems. We hope the follow-up study will be able to solve these problems and to provide an effective investment strategy for our investors.
Keywords/Search Tags:Behavioral Finance, Irrational Phenomenon, ContraryInvestment Strategy, Momentum Trading Strategy
PDF Full Text Request
Related items