A well-known psychological factor in making risky investments is overconfidence (Barber et al., 2009), possibly affecting participating in the stock market (Baek & Choo, 2022; Xia et al, 2014) and excessive trading in this market (De Bondt & Thaler, 1995). Overconfidence may exist in different life domains but the most relevant for financial behavior is overconfidence in one's financial knowledge, indicated by the difference in objective financial knowledge and one's assessment of being knowledgeable (Inhelbrecht & Tedde,2024). The effect of overconfidence on risky investments may be mediated by risk aversion, i.e., a preference to avoid risk (Stefansson & Bradley, 2019, Xia et al., 2014). These relationships have already been confirmed using 1,194 individual responses from the 2018 wave of the Dutch DNB Household Survey (a cross-section). The current research will estimate these relationships using three consecutive waves of data from the Chinese Household Finance Survey (CHFS) including information on financial literacy, perceived knowledge, risk preference and risky investments from over 10,000 respondents, and controlling for several background variables. Using the CHFS allows for the estimation of cross-lagged effects, providing causal inferences of the variables involved.