Behavourial Finance

Behavioral Finance

I found that this article is quite interesting as I think that Jay's findings on behavioral finance can be applied to the phenomenon of the financial market in Hong Kong.

Jay mentioned that behavior finance consists of cognitive psychology and limits to arbitrage. I think the former is particularly worth studying when we analysis how the Hong Kong people picking their stocks or deciding what to buy in the stock market.

The financial market in Hong Kong is very prosperous that many people taking part in, not only the professional players or the bankers, but also the ordinary citizens, e.g. housewives and students. These non-professional players may use their own way to develop their investment strategies while these methods may somewhat different from the traditional financial theory.

A very famous and unique stock market phenomenon is the “Ting Hai Effect” or “Adam Cheng Effect”. This theory describes the sudden drop in the stock market when the Hong Kong actor, Mr. Adam Cheng is casting in the TV program during that period. Many stockbrokers and investors were still very concerned about the stock market situation when Adam’s TV shows were premiered. However, some columnists argue that it is just “a coincident which unfortunately, had a large negative impact therefore creating a strong mental perception linking the then wildly popular stock market themed TV drama series with the crash.”1

Some other methods are often considered to be “superstitious” by the Western investors too. For examples, the local investors use “Feng Shui” to predict the up and down of the stock movement. Many listed companies, especially the China-based one, prefer using code with a number “8” (like “1398” for ICBC, “3988” for BOC and “2628” for China Life) since “8” mean “wealthy” in Chinese.

These phenomena may be just self-fulfilling prophecy and hindsight bias. But the correlations between these phenomena and the financial market may be valid. Who...