| The traditional financial theory has its limitation in explaining therelationship between stock price and real economic problems. In traditionalfinance theory, the assumption that all investors are rational is quite differentfrom the current situation. Therefore, the traditional theory fails to explain thestock price deviation from its true value. The rise of behavioral finance aimsto solve such problem. The core theory of behavioral finance is that investors’irrational behavior causes the stock price deviation from its true value in thelong term.This thesis is founded on Case Study. There are two companies whoseshare prices experienced serious deviation from their true values andconsequentlycaused colossalinvestors’loss. Through in-depth study on publicinformation of two companies, the author concluded the investors’ irrationalbehavior is the reason for those losses.The thesis came upon the following conclusions:(1) In the current stock market, investors’ investment decisions are affected by a large number ofirrational factors.(2) The higher the degree of investor overconfidence, thegreater the volatility of the stock price will be.(3) Individual is vulnerable tothe low value information of stock market, which will lead to irrationalinvestment. |
