Herding Empirical Evidence From Hu-Shen 300 Index Constituent Stock Exchange

Lots of "anomalies" such as herding appear in financial practices which challenges the classic financial theory which is based on the assumption that people are rational. Behavioral finance which is based on the assumption that people are irrational has recently progressed vigorously."Herd behavior" in the stock market refers to the various investors ignoring the own analysis and according to "authoritative information" in the market on the investment decision-making behavior. It is reflected in the temporal consistency of behavior. Herding arise overreaction. In the bull market, herd behavior promotes investors to buy blindly and creat stock bubbles. In the bear market, investors sell blindly, which increases the stock market crash and even trigger financial crisis. So the significant degree of herd behavior has become an important indicator of stability and maturity of the stock market.Article discusses the present theory about mechanism of the herd behavior. The drivers of herd behavior are divided into two categories according to the view of rationality or irrationality. Rational driver includes fundamentals driver, information driver and agent driver. Irrational driver includes psychological drivers such as imitation, infection and group pressure.With the bases, three hypotheses are proposed. Hypothesisl:The average absolute value of the daily yield of respective stock is positively correlated with the herding; Hypothesis 2:The circulation equity of respective stock is negatively correlated with the herding; Hypothesis 3:ROE is negatively correlated with the herding. The business data of stocks included in Hu-shen 300 index in 2007 and 2008 as the object of study, using econometric research methods such as statistical analysis and regression analysis, take empirical study on herd behavior in stock market of mainland. The empirical results herd behavior exists in stock market of mainland in 2007 and 2008. The herding in 2008 is stronger than in 2007. The average absolute value of the daily yield of respective stock and the circulation equity of respective stock are significant factors affecting herding. ROE is not the factor affecting herding, which shows that investors do not invest according to the company internal attributes. The effect of average absolute value of the daily yield is stronger than circulation equity and ROE.Surrounding the influence factors of herding, inspirations are taken from different groups such as the government, listed companies, brokerages, securities intermediaries and investors. Improve the trading mechanism to prevent large fluctuations in the stock market, improve the quality of information disclosure and educate investors rational investment, so that the securities market trend to a more stable and balanced state and the business of stock market trend rationality.