A Simulation Study On Herd Behavior In Stock Market

In recent years,behavioral finance theory gradually has been sprung up, along with traditional financial theory based on"rational person"supposition and"Efficient Market Hypothesis"has been questioned unceasingly. On foundation of the research results of psychology, behavioral finance brings Human's psychology and behavior into finance study field. Begin with investors'actual decision-making psychology, it surveys the influence of Human's factor which controls financial market to the market over again. It uncloses investors'actual decision-making process preliminarily. Thus it has the positive instruction significance to investors'actual decision-making in the capital market. As a very important research area in behavior finance theory, herd behavior has been valued by scholars because its tremendous influence to the market stability and validity, and it has also obtained many valuable research results in this field. But as a result of traditional research technique's limitation, some barriers exist in the former research. so we have difficulty in continuing the study of herd behavior thoroughly. Fortunately, Agent-based simulation method which is different from the traditional mathematics inference method has been applied to finance research area gradually by scholars. From microscopic to macroscopic, as a kind of new study method bottom-up, the Agent-based simulation method specially suits what the traditional mathematics method can't effectively deal with, such as the financial market--the research of Complex Adaptive System. What is specially worthy pointing out, one side, the Agent-based simulation method provides new way to the research of finance area; on the other side, Human's microscopic behavior research results in behavioral finance theory also provide theory foundation for the Agent's microscopic behavior suppositions in financial market simulation models. Therefore it is natural to union the two to research financial market.Under this background, in his paper, we comprehensively utilizing the behavioral finance theory, herd behavior theory and financial market simulation method, then establish a simulation model on stock market aimed to study herd behavior. To do this, we want to study the influence of microscopic main body's irrational herd behavior to the macroscopic attribute of stock market, and we realize the model using Java language programming on the simulation tool platform--"Swarm". The model in this paper found on the hypothesis according with the realistic micro-structure of China's stock market, and we assume that there are three kinds of traders in the market, that is rational traders ,noise traders ,and herd behavior traders. The rational traders make out buying or selling decision according to their rational anticipate to the stock's fundamental value. The noise traders do this according to their noise signals. The herd behavior traders blindly imitate market trend to buy or sell stock. We establish the simulation model on that and then process the simulation experiments, analyze the results, at last give the conclusion. We find in this paper: If the irrational herd behavior traders'proportion was not very high, the influence to the market would be positive .But if the irrational herd behavior traders'proportion enhanced to a very high level, then the stock price's fluctuates degree would increase greatly, the utilizing efficiency to new messages in the market would decrease intensely, and the fluidity would also decline much. The research conclusions provide theory basis to correctly understand and treat herd behavior, and it has higher theoretic value and practice value.