Herd Behavior Of QFII In Chinese Stock Market

Since UBS AG and Nomura Securities co.Ltd firstly became the QFII in China,Chinese government has quaulified 52 institutional investors as QFII until October 26^th in 2006,while $9,995 billion had been permitted to invest into Chinese capital market,which means $10 billion quota had been used up.Herding behavior is one of baffling phenomenon that is called "Market Anomaly"on financial market. The traditional financial theories which base on "Rational Investor" hypothesis can't give it a reasonable explanation. The naissance of behavioral finance points out another approach for herding behavior study so that it has become one of important branches of modern behavioral finance. As a kind of universal phenomena, herding behavior has been exerting great impact on stock market, especially on the new Chinese stock market brought out in economical transform period. With expansion of the scale of QFIIs, their investment behavior play a more and more significant role in Chinese stock market. The study on their herding behavior would be very meaningful theoretically and directionally.Basing on a systematical review of theoretical and empirical literatures aboutinvestment funds' herding on financial markets, the paper applies the LSV testing method to realistic circumstance of Chinese stock market and makes empirical test on Chinese QFIIs'seasonal herding degree.The empirical result shows: herd behavior of QFIIs exists significantly in Chinese stock market. The degree of QFIIs' herding in different season shows that buying herding sometimes is greater than seling herding while somes reverses.The difference between buying herding and selling herding expands as the stock index goes up.The herding degree of QFII in the whole is much higher than that of domestic and foreign mutual funds,but close to that of QFIIs in Taiwan. Then the paper analyses three reasons that cause the herding of QFIIs:mutual principle of value investing;mutual chase of profit and sharing of research resources;indirect impact of off-shore Stock Index Futures. The last chapter provides the way to eradicate the negative effects of herding behavior on Chinese skock market.