An Index Model of Stock Market Based on Investors’ Behavioral Contagion

Abstract

Under the framework of behavioral finance, the modeling idea of the SIS epidemic model is used to study investors’ behavioral contagion affecting the capital flow of the stock market. An index model of the stock market is established and stability of equilibrium is analyzed. The threshold theorem applicable to the stock market is obtained. This paper quantifies the behavioral contagion of investors by defining the investment infection rate and the investment removal rate. The model built on this basis can more accurately describe the behavior of investors in actual investment decision-making and its impact on stock indexes. Both the theoretical research and empirical analysis indicate the rises and falls of the stock are consistent with changes in the proportion of the infection rate and the removal rate, revealing a clear positive correlation and the dominant nonlinear relationship. Finally, the Granger causality test is carried out, and the results show that investor behavioral contagion is the cause of the stock market’s rise and fall changes. Investor behavior contagion affects the stock price, but the stock price changes are not the cause of contagious changes in investor behavior.