Author(s)

Jenny Tang

Corresponding Author

Jenny Tang

Abstract

The theoretical basis of the fusion of behavioral finance and quantitative strategy is discussed in this paper. The purpose of this paper is to deeply analyze how the combination of behavioral finance and quantitative strategy can bring a comprehensive perspective to investment decision-making. This paper first expounds the core theories of behavioral finance, such as prospect theory, overconfidence bias, herding effect and so on, and analyzes how these theories explain investors' irrational behavior. Then we introduce the basic principles and main types of quantitative strategies, such as momentum strategy, value strategy, arbitrage strategy and so on. On this basis, this paper focuses on the integration of behavioral finance and quantitative strategies, such as putting investor sentiment indicators into quantitative models, using behavioral bias to design trading signals, and optimizing risk management according to behavioral finance theory. The paper also discusses the challenges faced by such integration, such as low data quality and complex models. Finally, this paper summarizes the potential advantages of the integration of behavioral finance and quantitative strategy, and points out that this combination can not only improve the effectiveness of investment strategies, but also help investors better understand and respond to market irrational behavior, so as to make more informed decisions in complex and volatile financial markets.

Keywords

Behavioral Finance; Quantitative Strategy; Investor Behavior; Market Anomalies; Risk Management