Small Cap Stocks Trading Strategy Based On Behavioral Finance

Since the seventies of the last century, with the development of the natural sciences and the social sciences, many disciplines begin to merge with each other, mutual promotion and development of various interdisciplinary also sprung up. Behavioral finance is subject to other relevant actors "psychological behavior" and "finance" and other hit together and developed new science, and grew up in the financial markets for traditional financial unexplained phenomena and research.At present, China’s securities market, compared with developed countries is still in its early stages of development, theory and practice of behavioral finance overseas development of China’s financial market has a strong role in guiding, but because of the cultural system,social ideology and investors differences in quality and other factors, the performance of the cognitive and behavioral deviations will be slightly different, irrational phenomenon will be different, which led to the choice of investment strategy and apply the effect will be different.Analysis of the data used in this paper are from the country and the GEM stocks in Shanghai and Shenzhen markets. In a specific analysis of the behavior of trading strategies,the paper finds that small-cap stocks trading strategies may be more effective depending on the circumstances of the irrational behavior and cognitive biases. Then to the GEM stock market small cap investment strategies, for example, the establishment of two combinations GEM small cap strategy portfolio and market shares in Shanghai and Shenzhen, the monthly visits between 1 January 2011 to 31 December 2014 the yield situation, and the Shanghai A market portfolio yield of reference. Inspection of the time span of 48 months, and each month a test range. After two stock portfolio yield analysis, gives his own analysis conclusion.Concluded the way howt to use the behavioral investment strategies and what should be paid special attention. First, to be realistic, to develop their theory with practice, look at any policies and methods of thinking vision of development. Thus the initiative to promptly adjust the investment strategy to adapt to changes in the continuous development of China’s securities market. Because no matter what kind of behavior in certain investment strategies are irrational phenomena on the basis of assumptions built up, and the market irrational phenomenon evolving with the market changes. In addition, due to investors’ risk toleranceand income requirements are different, to choose their own investment behavioral strategy according to their own situation.Our behavioral finance research carried out such a developing country and the market is very realistic. By irrational phenomena intrinsic factor analysis, facilitate and provide evidence for improving China’s capital market system leak filled, in addition, the use of strategies for market stability mechanism will form a self-improvement guide.