Effect of Overconfident Investor Behavior to Stock Market
Ryota Inaishi, Kaoru Toya, Fei Zhai,
and Eisuke Kita
Graduate School of Information Science, Nagoya University, Furo-cho, Chikusa-ku, Nagoya 464-8601, Japan
Behavioral finance theory has been presented to explain the phenomena not explainable by conventional finance theory based on efficient market hypothesis from the investor psychology. We focused on overconfidence – an important psychological bias –, and analyzed the effect of overconfident investor behavior in stock market using multiagent simulation. We found that, based on the increase in overconfident market investors, market dealing increases and rising trends occur more often. An analysis of the relationship between overconfidence and rising trends shows that rising trends make investors even more overconfident.
-  H. Shefrin, “Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing,” Oxford University Press, 2002.
-  J. Goldberg and R. Nitzsch, “Behavioral Finance,” Finanz Buch Verlag GmbH, 1999.
-  N. Leeson, “Rogue Trader,” Penguin, 1996.
-  G. Belsky and T. Gilovich, “Why Smart People Make Big Money Mistakes And How To Correct Them,” Simon & Schuster, 2000.
-  R. Inaishi, F. Zhai, and E. Kita, “Effect of overconfidencial investor to stock market behaviour,” IPSJ SIG Technical Report, Vol.17, pp. 33-36, 2008 (in Japanese).
-  K. Izumi, H. Matsui, and Y. Matsuo, “Socially embedded multi agent based simulation of financial market,” In E. H. Durfee, M. Yokoo, M. N. Huhns, and O. Shehory, eds., Proc. of 6th Int. Joint Conf. on Autonomous Agents and Multiagent Systems (AAMAS, Hawaii, USA, May 14-18, 2007), pp. 175, 2007.
-  K. Izumi and K. Ueda, “Learning of Virtual Dealers in an Artificial Market: Comparison with Interview Data,” In IDEAL, pp. 511-516, 2000.
-  H. Takahashi and T. Terano, “Stock Price Prediction Using Prior Knowledge and Neural Networks,” J. of Artificial Societies and Social Simulation, Vol.6, No.3, 2003.
-  H. Takahashi and T. Terao, “Emergence of Overconfidence Investor in Financial Markets,” Trans. of Information Processing Society in Japan, Vol.47, No.5, pp. 1433-1441, 2006 (in Japanese).
-  E. Fama, “Efficient Capital Markets: A Review of Theory and Empirical Work,” J. of Finance, Vol.25, pp. 383-417, 1970.
-  D. Kahneman and A. Tversky, “Prospect Theory: An Analysis of Decisions under Risk,” Econometrica, Vol.47, pp. 263-291, 1979.
-  H. Simon, “Behavioral Economics,” The New Palgrave: A Dictionary of Economics, Vol.1, pp. 221-224, 1987.
-  A. Shleifeer, “Inefficient Markets,” Oxford University Press, 2000.
-  B. Barber and T. Odean, “Boys will be Boys: GenderOverconfidence and Common Stock Investment,” Quartery J. of Economics, Vol.116, pp. 261-292, 2001.
-  B. Barber and T. Odean, “Online Investor: Do the slow Die Fast,” Review of Financial Studies, Vol.15, pp. 455-487, 2002.
-  T. Odean, “Volume, Volatility, Price and Profit When All Traders Are Above Average,” The J.of Finance, Vol.53, No.6, pp. 1887-1934, 1998.
-  D. E. Baestaens and W. M. V. Bergh, “Tracking the Amsterdam Stock Index Using Neural Networks,” Neural Networks in Capital Markets, 1995.