Analysis of Behavioral Finance Investment Strategies

I. Overview of Behavioral Finance
Behavioral finance assumes the challenge for the two traditional commercial banks for us to study the issue of corporate governance provides a new perspective:
1, the traditional financial theory assumptions about human behavior. Traditional financial theory holds that people's decisions are based on rational expectations (RationalExpectation, risk aversion (RiskAver sion), utility maximization and camera choices based on these assumptions. But a lot of psychological studies show that people's actual Investment decisions is not the case. For example, people are always over-confident that their own judgments, people are often the result based on their profit and loss making state decision-making subjective judgments and so on. is particularly worth noting that Research shows that this deviation from rational decision making is systematic and can not be eliminated because of statistical averaging.

2, the effective market competition. The traditional financial theory suggests that competition in the market process, the rational investors are always able to seize every created by non-rational investors arbitrage opportunities. Therefore, be able to survive the market competition only rational investors. But in the real world, the market is not so perfect as the theoretical description of the large number of "anomalies" in the traditional financial theory appears unable to cope. the traditional theory of optimum we found a way to tell the people " how to do ", let us know" what should happen. "Unfortunately, not every market participant can fully rational model in accordance with theory to action, people's irrational behavior plays in the economic system, the role can not be ignored Behavioral finance is to behavior, psychology and cognitive science applied to the results of the financial markets resulting from a new theory is proposed based on the results of psychological experiments investors assume that the psychological characteristics of decision-making to actual Investment decision-making behavior of investors a discipline.

Second, the main theory of behavioral finance
1, the basic content of expectancy theory
The expression of this theory is: the same people decided to take in response to situations he is profitable or losing money. In general, the amount of profit and loss when the same circumstances, when people are losing money will become more depressed, When the profit, he was not so happy. When individuals see the same amount of loss in the degree of frustration than pleasure under the same level of profitability is much stronger. The study also found: one dollar at a loss when investors, the pain of the strong the degree of pleasure in the level of profits when a dollar twice. They also found that different individuals respond to the same situation depending on his current situation is the profit or loss.

2, the main contents of regret theory
Investors often occur in the Investment process the psychological state of regret. In the context of the great bull market, there is no timely intervention will regret their favorite stocks, the stock profit will be sold prematurely regret; in a bear market (bear market) background, no Stop out will regret it in time, was not able to deliver a small profit, and then will be stuck with regret; in the equilibrium market, their stock is not held up not down, others recommended the stock to rise, they will listen because there is no and timely advice to others Convertible regret; present determination to, the hands do not sell the stock up, while experts recommend buying the stock, they find out that they hold the stock rising, and experts recommend the stock not up or when the more regret.

Third, the behavioral finance application in practice
In fact, a variety of active management are assumed market price distortion or invalid. Their view distorted by investing in the market price or value of assets available. However, all the people know that this invalidity is fleeting, so that these invalidity for the patient may return to investors. "patience" is a good Investment strategy for the important part.

Behavioral finance theory can explain such as Allais paradox, calendar effect the equity premium, option smile, the mystery of closed-end funds, small cap effect, and so finance problems. Also raised the cost of the average strategy, the reference point selection strategy to determine the expected loss, momentum trading strategies, Investment strategies. some financial practitioners have begun to use behavioral finance these Investment strategies to guide their Investment activities.

Average cost policy. The average cost of strategy is in stock prices fall, buy the stock in batches in order to spread low-cost strategy. To adopt this strategy is not the pursuit of utility maximization, but to reduce Investment.

Behavioral finance believe that people making decisions, often choose a decision-making reference point to determine the expected profit or loss, rather than focus on the final status of wealth. In the process of psychological expectations, people will be divided into different mental accounts decision to consider, and often have self-confidence plot, over-the goods or services already have, and where goods or services tend to increase the frequency of use. also the expected loss is too sensitive to the value of the loss calculation the same as the value is much higher than the same income, and the loss of what has been formed to show a "disposition effect", due to cost recovery and look forward to the opportunity to continue to withstand the possible loss. Therefore, in behavioral finance "psychological" account and "cognitive bias" in these two a concept, it should be in the daily financial management concerns. the use of momentum trading strategies. the pre-stock returns and trading volume on the set filter criteria, when the stock returns or stock returns and trading volume at the same time meet the filter criteria, to buy or sell shares Investment strategy. When the disposition effect in the stock market is relatively serious, it brings the value of the stock market price of the basic difference between the rate will be greater; when prices return to the values, you can use the momentum trading strategy, by the margin profit. Links to free download http://www.hi138.com four papers, the stock fund Investment strategy
1 Equity Fund features:
�� Compared with other funds, stock fund investors have the diversity, also has a diversity of investment objectives.

�� with investors compared to direct investment in the stock market, stock funds have spread the risks. Lower cost and so on. For most investors, private capital is limited after all, difficult to pass the kind of diversification to reduce investment risk. But if Investment in equity funds, investors can not only share all kinds of stock returns, and has invested in equity funds through which the risk of spread to all types of stock, greatly reduce the investment risk. In addition, investors in the stock fund, but also large investment funds can enjoy comparative advantages in cost, lower investment costs, and improve investment efficiency, access to the benefits of economies of scale.

�� from the liquidity point of view, equity funds have the liquidity, the liquidity is high. Stock fund investors is an excellent stock of liquidity, funds with high asset quality, liquidity is easy.

�� For investors, equity funds operate in a stable, substantial income. In general, the risk of equity funds, low-risk investment than stocks. And thus a more stable income. Not only that, after the listing closed-end stock funds, investors can also received in the exchange-traded spreads. Fund expires, investors have the right to allocate the remaining assets.

2, have the quality to win the stock investment
For us, success in the stock industry, the quality should include: patience, self-reliance, simplicity, can endure pain, open-minded, independent ability to judge, perseverance, humility, flexible, willing to do independent Research work, the courage to admit mistakes , and dismissed fears of ordinary business. These qualities have Buffett's advice is consistent, is consistent with behavioral finance, the market may be invalid, positive managers have the potential to add value, but The invalidity is neither simple nor static, not the lowest cost of using them. In other words, a feature of the market inefficiencies that easily defeated. This means that once the market is isolated from the invalidity, and well-known, more and more The invalidity of chasing money, this feature disappears. The problem is not that investors and their advisers are ignorant or apathetic, is the time when the information received may have changed. dissemination of financial information as optimistic when Most investors think the economy will further rise in the near future, the economic trend has been the decline actually ahead. hard-headed investors can with incomplete information, not ideal conditions to make the right decisions, that need all kinds of information the "scientific mind" is unscientific.

3, according to the different investment risk and return
Growth fund can be divided into investment funds, income-based investment fund and balanced fund. Growth Investment Fund is to seek long-term growth of capital investment purposes as investment funds; income fund is for investors to bring a high level of current income for the purpose of investment funds; Balanced Investment Fund is to pay current income and the pursuit of long-term growth of capital investment funds for the purpose. the source of risk perceptions can be found in the human feelings. We are social biological, coordinated with others eager to reach a consensus.

Conclusion
Failure of the conventional method fails often unconventional pain than less. Accordingly, investors are more willing to take a greater risk of failure of conventional methods, and not willing to take unconventional way possible to lower the risk of failure. Thus, whether the stock market boom or plunge, or at the level of normal trading, the Hang Seng stock price index basically reflects the activities of the entire stock market.

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