Research Of Herd Behavior Of Chinese Security Investment Fund

Since November 1997, when "Securities Investment Fund Management Interim Measures" was brought into force, the securities investment fund industry was born and has made rapid progress after experienced 10 years of development. In recent years, the research with regard to institutional investors'herd behavior both at home and abroad has become popular. A few scholars have pointed out, that China's securities investment funds have a serious tendency of herd behavior. However, the current researches mostly focus on the whole period of their sample data, and pay little attention into different states of market, such as bull and bear markets.Based on former research, this article studies the herd behavior of Chinese security investment fund through LSV model and CCK model, using the quarterly investment data ranging from January 2006 to December 2008 published by the investment fund, which then divided into two parts by the day when the Shanghai Composite Index reached 6134 points at October 16,2007, which the former part defined as bull market and the latter part defined as bear market, for the further study of investment funds'herd behavior in bull market and bear market. It is found that the herd behavior of security investment fund significantly exist when the stock market is either bull, or bear. However, compared with the results from previous years by other researchers, it has become less strong. Funds'herd behavior in the middle capitalization stocks is slightly stronger than the one in the large cap and small cap stocks. Herd behavior of investment funds have a neutral influence on the stock market price fluctuations. During the research interval, the whole investors' herd behavior in bear market is greater than that in the bull market, including:investment funds in different market conditions change little, while individual investors show significantly differences between Bear and Bull. As respect to the cause, the author believes that the herd behavior is a complex social and psychological phenomenon, and that its existence is not only attributable to rational factors, but also to non-rational factors. Only if both factors are taken into account, did this phenomenon been understood well:Rational factors can largely explain the existence of herd behavior, and irrational factors can explain why this phenomenon differs between different types of investors, as well as between Bull and Bear.