The Role of Anchoring Effect in the Stock Market Investment Decisions

Abstract

Price anomalies in the stock market are often difficult to explain using traditional financial theories, and such price anomalies severely affect the specific investment behavior of investors in the stock market and the trend of stock price movements. In order to study the causes of these anomalies and conclude certain countermeasures, this paper combines behavioural economic theories to analyze the causes of stock price movements over a certain period of time in terms of stock price trends caused by psychological deviations of investors in a specific industry. In this paper, this study finds that relevant stock price data by analyzing stock price movements over a certain period of time and integrate them to further understand the impact of investors' psychological biases or heuristics on stock price movements. Finally, this paper provides targeted suggestions for investors and stock market policy makers to address the importance of psychological biases on investment decisions, and suggests investors to consider the influence of different psychological mechanisms in the process of stock investment and make more objective value estimates for stocks. Second, it is recommended that government departments should reduce their intervention in the stock market to reduce the impact of policy changes on the stock market and promote a healthier investment environment for the stock market. In addition, stock market policy makers establish stricter laws for the stock market to regulate the price changes and valuation system of the stock market.