A Comparative Research On Irrational Behaviors Between Institutional Investors And Individual Investors

After nearly three decades of exploration and practice,China’s securities market has become important force in promoting the development of macro-economy and plays an important role in promoting the national economy.With the development of the securities market,the number of investors is growing and the structure of investors becomes more and more mature.As the main participants in the securities market,the structure of Chinese investors has experienced the evolution from the absolute dominance of individual investors,to the gradual balance between institutional and individual investors,and then to the gradual emergence of institutional investors as the dominant force.Along with the rapid development of the securities market,there are also some problems that need to be solved: based on the functions of resource allocation,financing,investment and capital asset pricing of the securities market,the economic and social development puts forward higher requirements for the securities market.However,the current situation of China’s securities market lags behind the economic development,with problems such as instability,low efficiency,price distortion and small GDP ratio.Currently,the high-quality economic development puts forward an urgent demand for the stable development of the securities market and the systematic prevention of financial risks,which has a strong forcing factor on the irrational behaviors of institutional and individual investors,and calls for in-depth and breakthrough research on them.Based on the perspective of behavioral finance,this paper takes institutional investors and individual investors in China’s securities market as the research object to compare the study of irrational behaviors in the investment decision-making process.Based on the approach of "difference comparison—model discrimination—mechanism research",this paper collects first-hand data by using questionnaires with situational elements,and conducts empirical research with anova,binomial logistic regression,discriminant analysis,cluster analysis and Bootstrap analysis.Aiming at sixteen common irrational behaviors,the degree and difference of irrational behavior between institutional investors and individual investors are compared and analyzed.On the basis of the difference research,we construct the linear discriminant model of investor heterogeneity.Taking specific irrational factors as the entry point,this paper studies the mechanism of investors’ irrational behavior through the test of intermediary effect.This paper finds that both institutional investors and individual investors generallyhave serious irrational behaviors,and individual investors are more irrational than institutional investors.Individual investors are more serious than institutional investors in 12 irrational behaviors such as loss aversion and regret aversion,while institutional investors are more serious in four irrational behaviors such as preference reversal.There are significant differences between institutional investors and individual investors in six irrational behaviors,such as preference reversal,confirmatory bias and sunk cost,indicating that the types of investors have influence on irrational behaviors.Based on the differences of irrational behaviors,the linear discriminant model was constructed with different methods,and four kinds of irrational behaviors including preference reversal,loss aversion,framing effect and status quo deviation were included in the model..The analysis shows that the preference reversal reflects the change of the specific decision-making situation of investors.Loss aversion reflects the basic investment mentality of investors;Framing effect reflects the decision-making cues and cognitive needs of investors.The deviation of the status quo directly reflects the decision-making tendency of investors.The class heterogeneity and irrationality degree of investors can be identified,and then the degree of market irrationality can be predicted to predict the financial risk through the linear model.The research shows that there is a deeper relationship between the irrational behaviors and the types of investors,and it is necessary to further investigate the process of irrational behaviors.The correlation among irrational behaviors was found by cluster analysis.Regression analysis shows that confirmatory bias plays an intermediation role in framing effect and overconfidence,while disposition effect plays an intermediation role in psychological account and risk seeking.Confirmatory bias affects investors’ attitude and processing of information.If the same information is expressed in accordance with investors’ need for "confirmation",it will be paid attention to and adopted;otherwise,it will be ignored,resulting in the framework effect of "different expressions of the same information".The confirmation process of confirmatory bias is actually a process of self-realization and self-affirmation,which causes or strengthens investors’ self-attribution psychology,improves investors’ confidence and causes overconfidence.The strategy of profit to invest and loss to protect of disposal effect forms a loss account and a profit account,and investors adopt different expectations to operate the profit and loss account,resulting in non-substitutional psychological accounts.The early performance after the profit of disposal effect makes the risk tolerance of investorsrise,and investors seek for more risks in pursuit of profits.While the paper loss occurs,the strong desire to get back the principal makes investors seek risk.The comparative research on the irrational behaviors between institutional investors and individual investors is a supplement to the existing literature and has some innovation points.In terms of research problems and perspectives,it is urgent to prevent financial risks and improve the efficiency of market resource allocation to achieve the strategic goal of maintaining financial stability and establishing a virtuous circle financial system.This paper pushed the prevention of financial risks at the macro level to the irrational behaviors of investors at the micro level.In terms of research design,progressive systematic research is conducted from the overall level,specific level and key level.This paper studies the differences of investors’ irrational behaviors,the linear discrimination model of investors’ heterogeneity,and the occurrence mechanism of irrational behaviors.The conclusion of this paper enriches the evidence for uncovering the irrational black box,provides reference for the follow-up research,and provides reference for investors and regulators.