Can prospect theory explain anomalies in the Chinese stock market?

To measure the decisive role of prospect theory, we use a quantitative model to test 15 anomalies in the Chinese stock market. The results show that when investors engage in prospect theory, two-thirds of the anomalies are made correct predictions within a reasonable parameter range. We reveal that prospect theory's ability to explain market anomalies is primarily driven by loss aversion and diminishing sensitivity in China. When factoring in prior gains and losses, retail investors do not demonstrate a predilection for gambling on "lottery-type" stocks. We quantify prospect theory's impact on Chinese stock pricing, proving psychological factors can be measured.