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The Analysis of Speculator’s Subjective Decision Making Behavior in Financial Market

Author: ZhangYu
Tutor: SunGang
School: Dongbei University of Finance
Course: Finance
Keywords: speculation subjective decision making comparison between expected revenue and risk speculative aspiration function
CLC: F830.9
Type: Master's thesis
Year: 2011
Downloads: 45
Quote: 0
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Abstract

Speculation is a common economic behavior with long history. The financial market is also an important speculative market since it was born in 15 century. Nowadays, the financial market is enormous in scale. In 2007, the total market value of global stock market is 57.4 trillion dollar about 1.2 times of the GDP that year. Moreover, the daily volume of foreign exchange market is extremely high up to 4 trillion dollar. The speculative behavior influences the financial market volatility and thus has impact on macro-economy. We need have correct understanding of speculation and do further research of its regular pattern and impact so as to recognize the fluctuation and development of financial market deeply. This also has great theory and realistic value in macro-economy management, financial market regulation and trade method, etc.Speculation is a complicated economic behavior and hardly to set up a entire theory for it. In this essay, from micro view, the writer tries to analyze the speculative behavior in speculative financial market. First, the writer indentifies the definition and feature of speculation to avoid unnecessary argument caused by misunderstanding of concept. Second, make the qualified speculative behavior simplified as a subjective and dynamic decision making process. In this process, there are four key nodes defined as entry node, open node, close node and exit node. Third, the writer simplifies and restricts the financial market environment and summarizes some important and common criteria in speculators’psychology and behavior. According to that, the writer creates four key variables including expected revenue, expected risk, subjective probability and risk compensation coefficient and then construct a speculative aspiration function as decision evaluating and choosing tool of speculator. Base on above, analyze the two main steps in general nod decision making. Furthermore, analyze the decision making separately and particularly under entry node, open node, close node and exit node. Some important and realistic conclusions are drawn through the analysis. In the end part, the writer makes a summary and evaluation of the conclusions above and then point out five main factors affecting the result including the method and custom, analysis and judgment ability, implement ability, state of mind and learning ability of the speculator.Restrained by the volume of this essay and the capacity of the writer, this research and analysis is just a tip of the whole speculation iceberg. The writer expects this essay can do some enlightenment and contribution to the academic research.

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CLC: > Economic > Fiscal, monetary > Finance, banking > Finance, banking theory > Financial market
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