Analysis Of Individual Investors’ Irrational Behavior In Stock Market

The traditional finance based on EMH (Efficient Market Hypothesis) is themainstream of economics, which peaks in1970s. But began in1980s, anomaliesfrequently appear in market. Scholars tried to explain it with more sophisticatedmathematical inferences and more persuasive models. But they failed and made morepeople doubt the premise. By doing lots of empirical studies, they figure out investors inthe market are not all rational and they have many similar cognitive biases. Thisconclusion contributes to the existence of behavioral finance, which connects financewith psychology and sociology to explain the anomalies in market. After1990s,behavioral finance spreads fast. It focuses more on the effect of psychological activitiesto investor behavior than traditional finance. More close to the reality and provides bettertools to resolve practical issues in the market. All of this make behavioral finance hasmore practical significance. Currently, international investors’ research on behavioralfinance has not yet developed to the stage of practice, our behavioral finance studies havemainly stay in the validation and interpretation of phenomena, the theory to be furtherdeveloped.The security market in China is premature compared with that in developedcountries. The main investors are still small and medium-sized retail investors,speculation are outstanding in the market. The psychological condition and investmentbehavior of individual investors directly related to the sound development of securitymarket. Hence putting the result of behavioral finance studies into practice, rationalizingsmall and medium-sized retail investors’ activities by a series of ways are not onlyimportant to small and medium-sized retail investors’ risk averse but also have bigsignificance for the efficiency of security market.This paper firstly elucidates the theory of behavior finance, introducing the originand current situation of the development of it and gives a brief introduction of researchideas and research methods. Secondly, the dissertation briefly presents research findingson behavioral finance both domestically and abroad, enumerating several common biasesin behavioral finance. Within the category of securities market, defining the individualirrational theory; On this basis, in the form of questionnaire survey, combining themethods of sociology and experimental psychology, to determine the irrational behaviorof individual investors in China securities market, including "overconfidence biases ","excessive speculation biases ","herding effect ","disposition effect ","mental accounts effect","anchoring effect","framework biases ","hindsight biases " and " policydependent biases”, analyzes the causes of irrational behaviours. At last, the essaycorrects the biases of individual investors from the perspective of the investment strategy.Make suggestions on regulating and keeping orders of security market to prompt thesustainability of it by combining country and institution aspects.