The Study Of Investor Behavior On Price Limit

Compared to two hundred years history of the US and Europe, China’s stock market is still relatively young with some shortcomings in the regulatory system, although the Chinese stock market has been established for more than20years. So investor behavior in general is irrational because of low levels of education. Investors often make short-term investments, noise trading, and overreact. The investors tend to be panic in extreme stock market the investment behavior, and then panic will spread to affect the normal operation of the capital market. Therefore, our government develop price limitss(±10%) in the stock market. However, the price limits has often led to abnormal returns effect and the investment behavior as pursuit risen up and abandon got down. Many economists study the performance evaluation of price limits mechanism, but most of them ignore the investors’behavior; as while they only study the investment behavior under normal circumstances, but not for the stock price touching the price limits. Therefore, this article made the study of investor behavior on price limits based on behavioral finance to make up for a blind spot, to valuable investment advice in practice for investor.Because of China’s securities market is weak or even non-valid and effective. So, this paper on the one hand, used the event study method study the income abnormal effects、 the characteristics stock price volatility and different investors’ behavior,; on the other hand, built dynamic panel models by GMM to research the factors that affect the behavior of investors under the price limits.The following conclusions:(1)The net stock buying rate of the upper limit stock will increase first and then decrease as parabolic trend. Interestingly, the upper limit stocks attract the attention of investors, investors exist "chase-win" behavior about big scale share, while having "sell-win" disposition effect about small scale stocks to small Investors.(2)There are different characters of net buying rate in different scale of the lower limit stocks. Interestingly, for large scale stock, small investors in market presence "holding loss " disposition effect, but the outside small investors choose to buy under true value in the mean reversion of expectations. The big and mid investors in mid-scale stocks show "sell loss" behavior, while small investors show still "holding loss" even "buy loss". All types of investors in the small scale stocks show "sell loss".(3)There is negative correlation between overnight return and the buying behavior in the upper limit stock, while a positive correlation in lower price limits.(4) Small investors make decisions always depend on big investor, and small investors are more likely to be overreact.(5) Due to the limited attention and overreaction and limit,price limits stocks exist significant premium effect and discount effects, and with the size of the share capital decreasing, the abnormal stock returns effect is more significant.