Research On Herding Behavior Of Securities Market

Herding behavior of the securities market means that the investor imitates others when making investment decisions. Herding has been an important research subject all the time. Its theoretical model includes: the irrational herding behavior model, such as DSSW model, Interest Contagion Model, and so on; the rational herding behavior model, such as Informational Cascades Model, reputation model, Compensation model, External Payoff Model, etc.However, the above-mentioned models do not pay much attention to the composition of investors' utility function. In fact, investors' utility function is the foundation to form their decision. In this paper we study the relations between the stock market price movement and investors' psychology fluctuation to get some clues about investors' psychological change patterns. Then we construct a simple model to explain the herding behavior under the assumption of bounded rationality and non-linear frames.Thereafter, we review the empirical research approach of herding behavior, such as LSV method, PCM method, CH method and CSAD method, etc. In this paper we adopt CSAD method to carry on empirical studies using the sample stocks of 180 indexes of Shanghai Stock Market. The result indicates, during the sample period (from July 1, 2002 to December 31,2003), 180 index stocks of Shanghai Stock Market present obvious herding behavior.By helps of the imder-reaction and over-reaction theory from behavioral finance, we take a research on the investment strategies based on herding behavior, that is, the momentum strategy and the contrary investment strategy. The result indicates that stock returns present certain characteristic of contrary investment during corresponding sample period, meanwhile the momentary characteristic is not obvious.The herding behavior is helpless to the improvement of market efficiency, especially in our country. Therefore, the impact of herding is basically negative. The stock market supervisors should take some measures to improve the information quality, to lighten the danger of herding behavior, and to promote market efficiency.Zhang Zongqiang (Finance) Directed by Wu Haihua...