China Fund Herd Behavior Impact On Stock Price Volatility

The phenomenon of the stock market's fluctuation has been existed since the birth of China's stock market. In order to improve the structure of stock market investors and inhibit market fluctuation, the supervisors propose the strategy of developing the institutional investors power extraordinarily. Guided by this strategy, Chinese investment fund has made considerable development and become a major force in the stock market. Fund's investment activities will result in increasing impact to the stock market, and the Herding Behavior is one of the concerning phenomenon in fund's investment. Presently speaking, a same view has reached to study the existence of fund's herding behavior of China by LSV model. However, to the study of the influence of fund's herding behavior impacting on stock's price fluctuation, there are two opposite views, one is "increase fluctuation" and the other is "weaken fluctuation". Therefore, researching on fund's herding behavior and it's impact on stock's price fluctuation have great theoretical and practical significance to guide the fund's industry healthy develop and optimize the investment environment of the stock market.In this paper,we will use empirical research methods to analyze the fund's herding behavior's impact on the stock's price fluctuation based on analyzing both the fund investment behavior's characteristic and the stock market fluctuation's characteristic. Firstly, use the partial stock funds of 2006'sQ2 to 2009's Q3 as the sample and calculate it's herding behavior by LSV model. Then we will build a panel data model based on the tested herding behavior and then analyze the fund's herding behavior's impact on the stock's price fluctuation by empirical research methods.We will get the following conclusions through the above study. First, our investment fund has significant herding behavior, buy and sell herding behavior. Second, China's fund's herding behavior is positively correlated to the stock's price fluctuation. But in 2009's Q3, it is negatively correlated. Finally, this paper gives some policy recommendations to guide the fund's industry develop healthful and optimize the investment environment of the stock market by enhancing the information disclosure, establishing an reasonable and standard fund evaluation system, improving the stock's trading system, enhancing the qualities of listed companies and so on.