A Study On The Herd Behavior In Chinese Stock Market

To explain the "anomalies" in stock markets, behavioural finance has recently progressed vigorously. As an important branch of behavioural finance, herd behaviour has attracted numerous attentions since its first being raised.Herd behaviour in stock market means that investors ignore their private information and imitate others when making investment decisions.Theories are focused on the mechanism of herding. Thereinto, rational herding theories think that imperfect information, concern for reputation, and compensation structures are most important reasons for forming herd behaviour. However, irrational herding theories start with mentality of investors, point out the irrationalities of herd behaviour.As to empirical studies on herd behaviour in stock market., there also two categories: one is to test the herd behaviour on the whole market by using measure of cross-sectional dispersion; the other is to test the herd behaviour among fund managers through measure the average tendency of a group of fund managers to buy(sell) particular stocks at the same time.This paper takes a systematic look at the theories and empirical studies of herd behaviour. Learning from the methods of Christie and Huang (1995), Chang, Cheng and Khorana(2000), this paper does some empirical analysis on the herd behavior in the china's stock market. We finally conclude that compared with American stock market there is obvious herd behavior in china's stock market, moreover this phenomenon is more seriously when market falls.