The Influence of Psychological Factors on Financial Markets from the Perspective of Behavioral Finance

Abstract

This article discusses the impact of psychological factors on financial markets from the perspective of behavioral finance. Traditional financial theory assumes that market participants are rational and able to make optimal decisions, but in reality, market participants' decisions are often influenced by various psychological factors, leading to irrational behavior and price fluctuations in the market. The article explores the theoretical foundations of behavioral finance, including psychological account theory, prospect theory, social evidence theory, information asymmetry theory, and choice difficulty theory. It also examines the influence of psychological factors on financial markets, including emotional and cognitive influences, social and information dissemination, and the analytical methods used in behavioral finance research. The article concludes that the use of behavioral finance can provide investors and regulators with deeper understanding and insight to help them make more informed investment decisions and develop more effective regulatory policies. However, the future development of behavioral finance requires more empirical studies, multi-perspective studies, and multi-disciplinary cross-sectional studies to further expand the understanding of the impact of psychological factors on financial markets.