Research Into Stock Price Under Limited Rationality

The fluctuation of the stock market influences the development of the economy with its great fortune-creating power and elusive risk. As the market is on the way to mature, more and more investors join in the market hoping to make a fortune. However, the investors are not always or absolutely rational, and their irrationality challenges the traditional theory of the efficient market which now cannot account for the emerging anomalies of the stock market. The rising of the behavioral finance gives us a chance to take the investors’psychological factors into account to review the abnormal phenomena of the stock market, like the fluctuation of the stock price. Besides, gradually allowing short-sale in the stock market will eventually affect the fluctuation trend of the stock price and incites the perfection of the stock market in the long run. Based on the theory of value investment, the behavioral financial theory and the loose efficient market hypothesis, this article tries to understand the fluctuation of the stock price in a comprehensive way that combines rational and irrational factors. As a result, taking companies in the A-share market as samples and combining stepwise regression method of statistic software, this article adds in the irrational factors that represent investors’mental status to the basic data of the company that symbolizes rational factors to investigate the fluctuation of stock price and go a step further by combining heterogeneous belief with short-sale constraint to solidify the result of the analysis. Consequently, we find that investors’sentiment and investors’heterogeneous belief exist in the stock market of our country, and they will intensify the fluctuation of the stock price, yet, the effect of the model becomes better after adding irrational factors to the basis of the rational factors. In addition, it really matters that whether there is short-sale constraint or not. The systematic risk of a market that allows short-sale is intrinsically lower than that does not on average. Breaking the short-sale constraint of the stock market in our country will dredge a way for the investors’heterogeneous motion to express and the fluctuation of the stock price will be intensified after the market loosening its constraint of short-sale, which is helpful for the overestimated or underestimated stock price to fly back to its intrinsic value in a short time. As a result, what we find via the article shows us that the participators of the stock market should pay more attention to the irrational aspects of the investors to better understand the fluctuation of the stock price and the policy makers should make good use of the government’s policy of allowing short-sale in securities market to stimulate its process to mature.