Essay on behavioral finance

Submitted By minsoo0605
Words: 482
Pages: 2

Term Paper: “Abnormal Soaring Stock of CNK international in South Korea”
Situation
On December 2010, a significantly soaring stock gave a shock to stock market in South Korea. After unclear news released, the stock, named CNK international (039530), started increasing from $3 to $16 during 15 days, the news that CNK international invested in a mine in Cameron. The news included that the mine acquired by CNK international has a tons of diamond deposits that are estimated at 90 million dollars. At that time, the company’s total revenue was only about six million dollars. Investors’ attention was getting higher, resulting in the stock price going up rapidly. However, some people raised the question about credibility of the news and the question lasted for 1 years. During the period, the overestimated price of the stock fluctuated and hit the maximum price of $17. Finally it decreased to $1 at the start of 2012 after financial investigation institute officially released that it was faked. Many private investors suffered a huge loss from the investment of this stock. Behavioral Analysis
In this case, there were some behavioral biases that investors made. First, availability bias. The bias is that people put too much weight on information that is readily available. In that period, the news was so famous that most private investors interested in the stock. Even though the company could not receive attention before the news, the company become the one of the famous company on the stock market after the news. So, people who do not put their money into stock market started investing in the stock market by buying the stock because they were familiar with the company. Second, belief perseverance bias. This means that investors are reluctant to seek evidence which contradicts their belief. It is easy to find that the investors were biased by belief perseverance by just looking at the previous financial statement of the company.…