The Empirical Study On The Decision-making Behavior Of Individual Investors After The Stock Hit Limit Up

Limited attention is an important research field of behavioral finance in recentyears, it can explain the anomalies in the financial market in many cases based on thetheory of effective combination of psychology and finance. Especially in the stockmarket, limited attention dominated the decision-making of some investors, and thencontributed to some irrational transactions among which individual investors is themost prominent.Individual investors is different from the professional institutional investors, theirability of information searching and processing is much weaker than institutionalinvestors, and their time and energy spent every day in the stock market is limited. Inthe face of hundreds of thousands of stock, individual investors may not handle themassive, cumbersome stock information, so they often limit the scope of investmentdecision in some stock which can cause their strong concern, then make furtherunderstand on this part of the stock and finally make a choice.Trading board event selected in this paper is one of the events that can cause theattention of the most individual investors in daily transaction. In order to verifywhether the trading board event will cause the concern of individual investors, thispaper selects all the trading board events happened during from November4,2011toJuly4,2013, take the small net inflow ratio calculated from the capital flow data theday after the limit-up as the proxy variable of the attention, by analyzing the totalsample, we found that when the stock hit the limit up, the net buying behavior ofindividual investors will be prominent, the average value reached0.0331. Thenclassifying, analyzing and testing the total sample according to the factors which caneasily affect the investors’ attention like market, trading condition, holidays, thenumber of limit-up, industry and so on. Results: the buying behavior of individualinvestors is affected significantly by some factors which restrict the attention, such asholidays will disrupt the individual investors’ attention on the trading board stock;More amount of stock trading will disperse individual investors’ attention; Individualinvestors’ buying behavior is more positive when the stock market is good, etc..In the second part of empirical study in this paper we introduces nominal returnand real return as two proxy variables to measure the relationship between the degreeof individual investors’ attention and the return, the nominal return is the buyer’sincome before limit up which is also the main reason individual investors buy thestock at high price. While the real return is the real income individual investors get after buying the stock the second day after the limit up. Analyzing the tworespectively by regression analysis we found that: there is a significant negativecorrelation between the individual investors’ buying behavior in the second day afterlimit up and the nominal return and real return, the higher is the attention ofIndividual investors on the stock, the lower is the nominal return and real return of thestock. Nominal average return reached1.49%, but the real return was only0.23%.That means individual investors haven’t got significant gains after buying stock thesecond day after the limit up, on the contrary their behavior will be used byinstitutions investors easily to some extent. Because in the first part of this paperthrough calculation we found that the average value of large net inflow ratio, big netinflow ratio, small net inflow ratio is all negative and significant.This paper is based on the perspective of individual investors, there is a certaindifference between individual investors and institutional investors in the market,individual investors are relatively weak in the market for some reason such asinformation, funds, trading seats and other aspects, so in the actual transaction theyoften have many limitations and specific characteristics. For example, the possibilityof individual investors is trading the stock before the limit-up is small; it is difficult tobuy the shares after the limit-up; it’s difficult to participate in when limit-up or down;the price of aggregated auctions.is much higher the next day after the limit-up;individual investors’ chasing buying is more likely short-time behavior. Through dataprocessing and modeling based on these actual situations, the conclusion achieved ismore in line with the needs of individual investors, and also has certain reference inthe actual transaction.