1、 Overview of behavioral finance
The traditional financial theory starts from the premise of rational man hypothesis, and it does not consider the possible impact of investors' psychological emotions and other factors on investment decisions. In recent years, some extreme abnormal phenomena that cannot be explained by traditional financial theory often appear in China's financial market. Therefore, behavioral finance came into being in the 1980s. Behavioral finance is based on human beings and studies the impact of human psychological and emotional factors on investment decisions, providing a new perspective for people to study securities investment. Behavioral finance is a new discipline in recent years. It integrates finance, psychology, sociology and behavior. Through the research and analysis of investors' psychological emotions in the financial market, it further explains some extreme abnormal phenomena in China's financial market.
2、 An analysis of investors' cognitive and behavioral biases from the perspective of behavioral finance
The premise assumption of the traditional financial theory is that investors are rational people. However, behavioral finance is contrary to the traditional financial theory. Behavioral finance believes that investors are irrational in the financial market due to the influence of emotion, cognitive bias and other factors, which makes their investment behavior irrational, which will lead to a deviation between the asset value and the asset price at that time. Therefore, this paper analyzes the cognitive and behavioral biases of investors from the perspective of behavioral finance.
（1） Overconfidence. It refers to a kind of psychological state that people are overconfident in their own judgment ability because they overestimate their own ability. Among many irrational factors, overconfidence is a common psychological state of investors, and it is also the most prominent among these irrational factors. There are many literature studies that show that in daily life, people's self-confidence will increase with the difficulty of facing problems. When people face particularly difficult problems, they will have a psychological state of overconfidence. In the securities market, overconfident investors' behavior mainly shows that they overestimate the information that is consistent with their inner thoughts when making investment decisions, and tend to ignore the information that deviates from their inner thoughts. In addition, some studies have shown that overconfident investors are more willing to take risks, but they also tend to ignore the transaction costs, resulting in their income level lower than the normal income level.
（2） Overreaction. It means that people will pay more attention to the current information when they are faced with unexpected events, and it is easy to ignore the previous information, which may cause the stock price to rise or fall. When the stock price in the securities market rises continuously, investors expect that the stock price will also continue to rise, and become more and more optimistic about it. This is because investors make money in the actual investment process, which enhances their optimistic psychological state. However, this psychological mood will cause investors to have selective cognitive bias, that is, investors in the securities market will pay more attention to the good news of the stocks they invest in, While not paying much attention to or even ignoring bad news, at the same time, this overreaction state will further encourage investors to continue to buy, thus forming a mutually reinforcing effect. In this case, the stock price may rise far beyond its actual value; On the contrary, when the stock price in the securities market falls continuously, investors expect that the stock price will also continue to fall, and become more and more pessimistic about it. This is because investors lose money in the actual investment process, thus enhancing their pessimistic psychological state. Similarly, this psychological mood will also cause investors to have selective cognitive bias, that is, investors in the securities market will pay more attention to the bad news of the stocks they invest in, While not paying much attention to or even ignoring the good news, at the same time, this overreaction state will further encourage investors to sell continuously, thus forming a mutually reinforcing effect. In this case, the stock price may fall far below its actual value. The stock price will fluctuate sharply if it rises and falls repeatedly.
（3） Regret theory. It refers to the psychological state of regret caused by people's mistakes in decision-making due to their own reasons, that is, in a bull market, investors will regret not buying in time or selling too early; In a bear market, investors will regret not being able to sell in time; At the same time, in daily investment, investors will also regret that their stocks do not rise and the stocks recommended by others rise, and that they fail to listen to others' opinions and exchange shares in time; At the same time, there may also be more regret when the stocks they hold do not rise but the stocks they have just sold rise after selling their stocks and buying the stocks recommended by others. Therefore, in the stock market, investors often show hesitation in investment in order to avoid this regret psychological state.
（4） Prospect theory. It means that people show different risk preference behavior when making money and losing money in the process of investment in the securities market. In the process of investment, if an investor loses money due to the decline of the stock price, the investor will be more inclined to risk pursuit, that is, he will continue to hold the stock that loses money and think that the stock will continue to rise one day; In the process of investment, if investors make money due to the rise of stock prices, investors will be more inclined to risk aversion, that is, they will choose to sell profitable stocks. The theory holds that the establishment and change of reference points will affect investors' feelings of gain and loss, and then affect their investment decision-making behavior in the securities market.
（5） Herding. It refers to a phenomenon that an individual's thought or behavior changes in the same direction as most people due to the influence of others, that is, the change from individual rational behavior to collective irrational behavior. Herd behavior in economics refers to the behavior that some investors who do not have first-hand information in the market will change their decisions by referring to the investment decisions of other investors before investment in order to ensure the accuracy of their investment decisions. It mainly refers to the herd mentality in the investment process. Herding is an abnormal phenomenon in the securities market. In the long run, it will cause a vicious circle. More and more investors will follow the trend of investment behavior, which will greatly increase the probability of investment risk in the securities market, and also have a great impact on the stability and efficiency of the securities market.
（6） Momentum effect. It means that the stock yield will continue to maintain the original change trend, that is, the future yield of stocks with high yield in the past will also continue to maintain, and will still be higher than those with low yield in the past. According to the principle of momentum effect, investors can gain profits by buying stocks with high yield and selling stocks with low yield. However, there are also some drawbacks in this case, that is, some investors may have a fluke mentality, or excessively rely on some policies in the securities market.
（7） Disposal effect. It means that in the securities market, when investors dispose of stocks, they are more inclined to sell the stocks that have made money in their hands and choose to continue to hold the stocks that have lost money. They think that the stocks that have lost money may rise back to their cost price when they bought them or exceed their cost price in the future, without considering that they should pay attention to stop loss in time during the investment process, that is, when investors make money, they tend to avoid risk, Investors tend to have risk appetite when they lose money. （8） Heuristic bias. It means that when people are facing their own uncertain things, because they have no effective method, they will choose to rely on the Enlightenment from past experience for judgment. However, this method can sometimes help people make accurate judgments, but sometimes it will also cause judgment bias. This bias caused by using the Enlightenment from past experience for judgment is called heuristic bias.
3、 Coping strategies
（1） Reverse investment strategy. In view of the overconfidence and overreaction in the market, adopting the reverse investment strategy is a more effective method. Reverse investment strategy is to buy undervalued stocks and sell overvalued stocks through reverse operation in the actual trading process, so as to obtain certain benefits. However, in the actual use of the reverse investment strategy, we should pay attention to the rapid decision-making, so that our decision-making is far faster than that of most investors in the securities market, so that we can use this strategy to obtain certain benefits.
（2） Momentum trading strategy. For the lack of response and conservative psychology, momentum trading strategy is a more effective method. It is an investment strategy to buy or sell stocks when they meet the filtering criteria by setting the stock return and trading volume in advance. In the sense of behavioral finance, it comes from the research on the medium-term return continuity of stock prices in the stock market, that is, the future return of stocks with high return in the past will continue to maintain, and will still be higher than those with low return in the past.
（3） Cost averaging strategy. Cost averaging strategy refers to buying the same stock in batches at different prices during the investment process to achieve the purpose of averaging the cost, which can effectively reduce the risk of investing all the funds at one price. Generally, the cost averaging strategy enables investors to buy fewer stocks when the stock price is high and more stocks when the stock price is low, which can reduce the investment cost as a whole and further reduce the investment risk.
（4） Time decentralization strategy. Time diversification strategy means that the longer an investor holds a stock, the lower the risk of the stock will be. According to this theory, investors can buy more stocks when they are young, and then gradually reduce the number of stocks they buy as they grow older. Some scholars' research shows that in the period of 1 to 20 years, the longer you hold a stock, the lower the risk of loss. At the same time, the research also concludes that if you hold a stock for more than 15 years, you can basically get non negative returns.
（5） Investment strategy based on heuristic deviation. The investment strategy based on heuristic deviation refers to that, in order to deal with the deviation caused by making judgments based on the Enlightenment of past experience, investors can start to keep detailed records at the beginning of investment, which helps investors evaluate according to the contents of records, and then realize these deviations earlier than most other investors. Therefore, from the perspective of heuristic bias investment strategy, a successful investor should not only understand what cognitive and behavioral biases he will have in the investment process, but also avoid investment mistakes that may be caused by his cognitive and behavioral biases. At the same time, a successful investor should also timely understand the cognitive and behavioral biases of other investors, find the stocks mispriced by the market, invest in these stocks before most investors realize these biases, and then sell these stocks when most investors realize these errors and invest in these stocks, so as to obtain a certain excess return.
4、 Problems in securities investment based on Behavioral Finance
Based on the analysis of investors' cognitive and behavioral biases in the process of securities investment from the perspective of behavioral finance, the above puts forward some coping strategies for securities investment, but we should also pay attention to flexibility in the specific application of these investment strategies, because the investment strategy from the perspective of behavioral finance is that an excellent investor should invest in some securities when other investors have not found their cognitive and behavioral biases, When other investors find their own cognitive and behavioral biases, they can get excess returns by selling these securities. However, in the actual investment process, there may be a situation that most investors in the securities market are aware of this problem and adopt the same investment strategy. In this case, investors will not be able to obtain excess returns. Therefore, we should also pay attention to flexibility when applying the theory to the actual investment operation.
5、 Conclusion
To sum up, based on the perspective of behavioral finance, this paper makes a corresponding analysis on securities investment. Firstly, it summarizes behavioral finance, and then analyzes the cognitive and behavioral bias of investors from eight aspects, namely, overconfidence, overreaction, regret theory, prospect theory, herding, momentum effect, disposition effect and heuristic bias, Finally, the paper puts forward the coping strategies for the above listed eight aspects of investors' cognitive and behavioral bias, that is, from the aspects of reverse investment strategy, momentum trading strategy, cost averaging strategy, time decentralization strategy, and investment strategy based on heuristic bias, and further points out that securities investment based on behavioral finance should be flexible, I hope to provide some reference suggestions for securities investors when making investment decisions.