2010•Journal of Advanced Computational Intelligence and Intelligent InformaticsOpen access

Effect of Overconfident Investor Behavior to Stock Market

Ryota Inaishi, Toya Kaoru, Fei Zhai, Eisuke Kita

Abstract

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.

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Key concepts: Overconfidence effect, Behavioral economics, Investor behavior, Stock market, Efficient-market hypothesis, Prospect theory, Economics, Stock (firearms)