The Effect of Chinese Policies upon the Stock Market from the Perspective of Behavior Finance

Purpose - This research will act as a guiding principle for investors when they are in face of regulation and control policies. Therefore, the abnormal fluctuations of the stock market will be partly reduced. Methodology - The method of empirical study will be applied in this work. To measure the characteristics of the behavior, we mainly choose the turnover ratio as a criterion. The original data are selected from the class A shares of the Shanghai Stock Exchange, and the data of daily closing quotation will be used. After a policy is introduced, related data will be chosen. All of the sources are from the software "Wind Securities Navigation System". Findings - The national policy has a significant impact on investors' behavior and China's stock market, and Chinese investors show a strong psychological dependence on policies. From a specific analysis, a conclusion is drawn that the investment psychology of Chinese investors accords with the excessive self-confidence theory of behavioral finance. Furthermore, the Chinese stock market is not mature and is overwhelmingly affected by the national control policies. Practical implications - This article will allow Chinese investors to better understand their irrational behavior. It can also serve as a reminder for the government's policy makers when they promulgate regulations and control policies. This will make the policy to be promulgated at the right time, and prevent Chinese stock market from collapsing because of inappropriate policies.