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Author(s): |
Shiguo Huang, Department of Mathematics and Information Science, Zhengzhou University of Light Industry, Zhengzhou, China, 450002
Shihui Jiang, Department of Information Engineering, Henan College of Finance & Taxation, Zhengzhou, China, 451464 |
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Abstract: |
In this paper, we set up a new risky asset pricing model based on overconfidence and over-pessimism. According to the model, we analyse the impact of various factors on the equilibrium price of risky asset and find that irrational psychology has a significant effect on the price of risky asset.The more the percentage of overconfident investors or the degree of overconfidence is, the higher the price of risky asset is. There is negative correlation between the percentage of over-pessimistic investors or the degree of over-pessimism and risk asset prices. In the framework of a model, we explain the bubble and the crash in financial market. Finally, we put forward corresponding countermeasures against the bubble and the crash based on the conclusions above.
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