On The Herd Behavior In China's Securities Investment Funds

In November 1997, China Securities Supervision Association (CSSA) promulgated "Interim Regulations for Administration of Securities Investment Funds" for the purpose of improving investors' structure so as to stimulate the sustainable, stable and favorable development of the stock markets in China. Under such conditions, CSSA has witnessed a rapid development within a few years and begun to display its powerful function of raising funds as well as to play an active role in fostering the financial system reform. From the June of 2003, there have appeared 32 companies of funds administration and 8 banks of trust funds established in China. Up to now, the securities investment funds amount to 163.324billion yuans, surpassing 13 percent of Stock A current price in national stock markets. Among them, the initial shares have been over 160 billion since the trial of open funds for two years.On the other hand, due to some factors such as the inherent defects of China's stock markets, information monopolization, the non-standardization during the funds trial and so on, there occurred some deviations between the management of securities investment funds and orientation of anticipated functions, especially the function of stabilizing investment markets, which led to nation-wide concern and discussion among administrators, theorists and press circles.Herd Behavior (HB), which is a kind of collective behavior of investment funds in capital markets, refers to the mutual imitation of collective investment funds by adopting the identical or similar strategies in stock exchange. That is, a great deal of different investment funds is exchanged for a same type of stock at one time. Statistic evidence from financial markets shows that HB is unfavorable to the principal part of investors and the individual investors involved in HB will gain comparatively low profit. Furthermore, HB is a positive feedback toward the fluctuation of stock process, for which, many researchers hold that HB is a very important factor for the fluctuation of market prices. The studies of financial crisis in southeastern Asia indicate that HB of foreign investors contributes a lot to the financial crisis.As for China's research of HB, it started very late. It was not until the 90s in twenty century that people began to study HB with introduction of some well-established western theories, but with little knowledge of its application in financial field. At present, Chinese scholars mainly focus on HB's effect on stock prices, but the study of HB securities investment funds lies only on the initial level. For this reason, based on the theoretical analysis of HB, the present thesis relevant to Securities Investment Funds, attempts to make a experimental study of behavioral features of China's Securities Investment Funds and their effect on stock markets. The author argues that HB frequently occurring in the national investment funds with the tendency to have the same investment beliefs and unclear style of investment, to somedegree, deteriorates the fluctuation of stock prices. On the basis of the above analysis, the author tries to offer some reflections on the possible causes for HB in China's Securities Investment Funds. In order to foster the development of national Securities Investment Funds, some suggestions and solutions, as a reference by the investors and financial supervision departments, are also offered to control such a negative phenomenon.The thesis is divided into four parts. The first part analyses the economic basis of the production of Securities Investment Funds from the perspectives of economics information, enterprise management and new system economics. The second part deals with the comprehensive analysis of some achievements in the study of HB theory, models and experiments. Prospects for further study of HB are also discussed. The third part, based on the quantities research of HB abroad and at home, is devoted to the discussion of the state of HB in Securities Investment Funds by statistic analysis of information of investment i...