Chinese Stock Investment Fund Herd Behavior

The number of the stock investment fund in China has greatly increased from 5 initially in 1998 to 323 at the end of 2006. The total net asset of the stock investment funds has reached to 388.7 billion Yuan. At the same time, the behavior of local investor and characteristic of the stock market has been affected seriously.The stock investment fund has great influence to the stock market. The traditional view is that institutional investors such as funds are rational, so the more institutional investors in the market the more efficient the stock market is. However, the problem whether the stock investment funds have the herd behavior is not clear. Therefore, this paper analyses the problem by LSV model.According to the characteristics of the model, this paper put forward creatively the value of p i,twith how serious the herd behavior is. The result of the research shows that the stock investment funds (Equity Fund and Closed-end Fund) have serious herd behavior. They tend to choose the same stocks and concentrate on a few industries. This paper put forward some suggestions for the stock investment fund on reducing herd behavior.