Empirical Research On Herd Behavior In Chinese Securities Markets

Herd behavior in securities market means that investors imitate others because they have been influenced into reversing a planned decision. Herd behavior can reduces the efficiency of the market and destablilizes markets . The empirical evidence of herd behavior is very few in these days, especially in Chinese securities markets. This paper firstly take an overview at theoretical research on herd behavior in financial markets and show what precisely is meant by herding and the causes of herd behavior. Then this paper take a look at the question of herding in Chinese securities market .It shows that in Chinese stock markets ,there is sever information asymmetry and government has done too much to affect the functions of the markets. It shows at the same time that there is too much speculation and individual investors in Chinese securities markets .All of these 4 points make herding probably. Next, this paper make an empirical research on the herd behavior of securities funds in China. To find our the herd behavior of funds ,this paper hire the statistics developed by Lakonishok,Shleifer and Vishny(1992). This statistics is widely used by researchers since its birth. The results show that there is more herd behavior among funds in China than USA. Then this paper concludes that ,it is because of limited investing chances and speculation that makes funds herding. The press come from shares holder is one cause too. This paper then make an empirical research on herd behavior in stock markets with measuring Cross-Sectional Absolute Deviation, CSAD. This methods is based on that when there is herding in stock market CSAD is going to become smaller .The results is when the markets dropping there is herding among investors ,when the markets rising, there is no evidence of herding .The results prove my reasoning in section 3.Why there is difference between bull and bear markets is due to investors' different attitudes towards loss and gains. Prospect Theory developed by Kahnemen and Tversky(1979) can explain this properly. At the end of this paper, the author give some suggestions about how to remove herd behavior in securities markets.