Abstract: According to the actual situation in Chinese stock market,under the hypothesis condition that individual investors are overconfident and risk aversion and price-takers,this paper studies the effect mechanism of individual investors overconfident psychological preference on the price and its volatility of Chinese stock market by setting up an appropriate mathematical model theoretically.The research results show that the higher level of individual investors overconfidence would increase the volatility and expected price of stock market,and decrease the price quality of stock market and investors' total expected invest-ment income,while the higher level of individual investors' risk aversion and the more amount of average stock supply would decrease expected price of stock market and increase individual investors' total expected investment income.The above-mentioned conclusions,in a certain degree,can reasonably explain phenomena that price of Chinese stock market is up and down rapidly and significantly and fargreater than prices of stock markets in developed countries and regions,and the volatilitiy of Chinese stock market deviates from fundamentals of Chinese economic development seriously,and individual investors' total investment income of Chinese stock market is relatively low.

Key words: individual investor, overconfidence, pricing model, chinese stock market