Studies On The Effects Of Herding Behavior On Volatility Of Stock Market

Modern finance based on the efficient market hypothesis, proposed revolutionary theories about pricing and capital markets . However, there are some real market anomalies, and these anomalies can not be given a reasonable explanation with these classic modern finance theory. The effective validity of the market in the real market caused a huge challenge. With our theory of the importance of efficient markets made a deeper understanding, academic researches have turned to the practical experience of the problem which still exist, not just simply focus on the strong efficient market model. Establishing the true market model of investor behavior, and the real market operation rules are very urgent and necessary. The market herd behavior is more common phenomenon, and the analysis which is made from the perspective of behavioral finance is necessary.Usually in the financial market, herding behavior is that the individual investors will change their decision under pressure in the group, turning to the investment decisions which are consistent with the majority of investors who take investment decisions. There are a number of herding behavior in the financial market, the phenomenon of herding behavior may be as follows: First, many phenomenon in financial markets show some degree of volatility or a certain degree of vulnerability, which seems that the volatility are larger than the volatility of the fundamentals ; Second, in the absence of local area and private information, the market participants who generate a consensus are relatively lower, which shows that the phenomenon that all market participants have the independent decision-making is unrealistic; Third, in the communication, many influential participants constantly stressed that their decisions will highly affect other market participants. Classification of herd behavior: herding behavior theory caused by the behavior of homogeneous, payoff externalities: Information acquisition, preferences herd behavior, principal-agent models: Investment decisions, reputation models of herding behavior and so on.This paper selects from the data January 2003 through to December 2010 the Shanghai stock market, using cross-sectional dispersion of beta coefficient method, a comprehensive tracking the current presence of the stock market and its measure of herd behavior. The results show that there is a higher herding behavior on the Shanghai stock market. From 2003 to 2005, the beta coefficient of herd behavior is low, the band is also smaller; from 2006 to 2008, the beta coefficient is relatively large degree of herd behavior, and also great fluctuations; from 2009 to 2010 , beta coefficient is relatively small degree of herd behavior, while fluctuating. Based on the above analysis of herd behavior, we can get conclusions: the long term, China's stock market, the existence of herd behavior, in the stock market in a downturn, larger herd behavior, and when the stock market is volatile situation, herding a smaller scale. In the unilateral rise and fall of the stock market side, the herd behavior are small, but when the stock market is close to the highest point or lowest point, turn to larger herd behavior, adding to market volatility, so the price deviation from its value, causing the market overreacted. Market environment is fairly certain circumstances, a larger herd behavior, and its volatility is smaller, and when there is a big market environment variable, less herding behavior, and its volatility as well.Then we use the VAR model to analyze the obtained degree of herd behavior and the beta coefficient of the Shanghai Composite Index between income and concluded: first, when the market is unanimous or there is no consistent behavior, the market will bottom around a value slightly volatile activity; Second, when investors view the future direction of the market compared to the firm, the more serious herd behavior, regardless of the market is in a bull or bear market; third, herd behavior will aggravate the Shanghai Composite Index earnings volatility, the Shanghai Composite Index from its true value; Fourth, the stock market will increase revenue to improve the herd behavior of the market, and this profit-driven nature of the market herd behavior and can not eliminate.