A Study On The Impact Of Business Cycle On Investors’ Psychology Preference

Because many anomalies exist in the real capital market, people questioned the classicasset pricing theory. Behavioral finance is a new interdisciplinary subject, whichcombines the studies in psychology, economics and finance. Through the appropriaterelaxation of “rational person” and “efficient market” hypotheses, Behavioral financecan reasonably explain some anomalies, and more and more scholars concern it. A lotof studies have been done to observe investors’ psychological characters, and it hasreached a mature stage. Some psychological characters have been proved in capitalmarket. It is necessary to open a new research direction to promote the developmentof behavioral finance, so our research should focus on the factors which affectinvestors’ psychological preference.Business cycle affects investors’ psychological preference. Firstly, the direction ofbehavioral finance should be transferred to factors of investors’ psychologicalcharacters. The factors contain microeconomic factors and macroeconomic factors.Our paper focuses on the relationship between business cycle and investors’psychological preference. Secondly, we elaborate the relationship between businesscycle and investors’ psychological preference in theory. Thirdly, under the BHSmodel, endogenous growth theory (AK model) and some hypotheses, business cycleas a factor is integrated into asset pricing model. Finally, through testing, ourconclusions are “Investors’ psychological preference has the effect of pro-cyclical”and “The total utility of investors is to maintain a steady upward trend”. It isconsistent with China’s real economic situation, and it can promote the study of assetpricing and provide a new perspective to the study of investor psychology.