Impact of Investors’ Loss Aversion and Overconfidence on Market Performance Evidence from China Stock Markets

Abstract

This paper proposes a research that aims to answer how the loss-aversion and overconfidence treated as potential investor biases can potentially affect the performance of the listed companies operating in the market. This paper examines how loss aversion of investors influences the companies’ performance and how overconfidence of investors impacts on the companies’ performance. The research proposes a potential econometric model to represent the impact of investors’ loss aversion and overconfidence on market performance and does a solid analysis on the behavioral economics especially in China stock market. Many studies have been done on the relationship of biases and investment decision making but still there is a gap to bring in new moderators and mediators in it. With the empirical model built in this research, more information about behavioral economics could be revealed.