Herd Behavior In The Stock Market Research

Traditional financial theory is based on the assumption that market participators are all rational person, based on which the mainstream traditional financial theory wasconstructed, whose footstone including "Effective Marketing Hypothesis"(EMH) and "Random Walking"(RW). However plentiful empirical research present some evidence thatthere are vast of phenomena in opposition to EMH in the financial market recent twenty years, herd behavior is one of these, which refers to the investing behavior of investors.Studies of herd behavior in securities market is classified into two categories: one of these is Rational Herding, which notes that difficulties in obtaining the information, inspiriting factors which can effect the investors who taking the action in the market and existing of payoff externality make herding the optimum strategy. The other one is Irrational Herding, which mostly refers to mentality of investors. It considers that all investors can do are imitating each other blindly and ignoring the importance of rational analysis.This paper introduced some theories about herd behavior around the world nowadays: Payoff Externality theory, Principal-agent theory, Information Cascades theory, and choose one typical model for every one of them. These models describe actions of different types of investors under assuming, analyze the inherent reason arising the herd behavior and note the influence on the market.This paper also introduced the empirical method to gauge herding in securities market. It is very difficult to distinguish the type of herding, which is avoided in empirical research. Studies in empirical research on herding are classified into two categories: one of this is that choose the specific type investors as objects of studies; the other one is to test herding on the whole market. In this paper, we use the most recent data of our securities market to structure a model testing herding in the market. Also, we got the conclusion that there is herd behavior in our stocks market. Then we studied the factors arising this phenomenon, and put forward feasible solution.Finally we thought much of the herding in our securities market. Due to comprehending and analyzing the policy of QFII, we got the conclusion that this policy of QFII is beneficial to the question of herding.We are making great effort to open our securities market after we entering in WTO. We should studies herding arising in our market to keep our market stability.