Empirical Research On Herd Behavior In SH180 Stock Markets

The classic financial theory is based on the assumption that people are rational. However, since 1980's lots of "anomalies" appear in financial practice which are inconsistent with the classic financial theory. To explain the "anomalies" in stock markets, behavioral finance has recently progressed vigorously. Behavioral finance is based on the assumption that people are irrational. Herd behavior is one of the research aspects of behavioral finance."Herd behavior" is a kind of special irrational behavior, and we define it is a kind of behavior in a situation that the environment of the information is uncertain, the behavior is influenced by other investors imitating others and making policy, or depending on the public opinion excessively (namely the idea of the overwhelming majority in the market), without considering one's own information. As a kind of universal phenomena, herd behavior has been exerting great impact on stock market, especially on the Chinese stock market brought out in economical transform period.It has caused the academia and government to pay the extensive attention to the research of the herd behavior and present several practical theories. Theories are focused on the mechanism of herding. Thereinto, rational herding theories think that information cascades, concern for reputation etc, are most important reasons for forming herd behavior. However, irrational herding theories start with mentality of investors, point out the irrationalities of herd behavior. Over and above, this paper analyze the forming reason of the herd behavior from the angle of individual and group.Basing on a systematical review of theoretical and empirical literatures about stock's herding on financial markets, the paper applies the GARCH testing method to realistic circumstance of China and makes whole and classificatory empirical test on SH180 stock market during the time from January 2005 to December 2006. The empirical result shows: there is obvious herd behavior in SH180 stock market , moreover this phenomenon is more seriously when market falls. The obvious herd behavior in our securities market results from the institutional defects. At the same time there is too much speculation and individual investors in Chinese securities markets. All of these points make herding probably.The stock market supervisors should take some measures to improve the information quality, and to promote market efficiency. Otherwise, there are more way to advance in the theory and empirical study of herd behavior.