Herd Behavior In The Stock Market Research

Based on the research survey of the herd behavior in security markets, the author empirically studies the herd behavior in China stock market and theoretically analyzes the occurrence mechanism of it. Firstly, we survey the research issues, progress and existent problems of the herd behavior in security markets from the viewpoint of its causes, its impact on capital markets and its existing empirical studies. And we also expound the necessity of herd behavior research and make some prospects for further researches. Secondly, based on the modified empirical model of Chang, Cheng and Khorana(2000)and exploiting two stock return dispersions, CSSD and CSAD, we apply for individual empirical test and joint empirical test of the presence of herd behavior in Shanghai and Shenzhen stock markets and in various sectors by using the trade database provided by CSMAR and then examine the robustness of the results under the size effects. The results exhibit significant evidence of herding in both Shanghai and Shenzhen stock markets. And among various sectors, the herding in Industrial stocks is the most significant one. The significant evidence that herding in down market is stronger than that in up market is also captured by the model for both markets and sectors cases. This asymmetry of herding may be caused by the investor's significant loss aversion attitude when he makes the 'mental accounting'and tradeoff between the loss and the gains. And a bigger systematic risk in China stock market may be one of the causes of herding. Finally, we theoretically analyze the occurrence mechanism of herd behavior from the viewpoint of the difference in risk aversion between the market maker and the informed trader. The results shows that, even there is only one dimension of uncertainty and the market maker and the informed trader interpret the same history of trades in the same manner, the difference in risk aversion can also make the history affects their valuation to the risky asset differently, which can induce a bigger difference between the bid and ask price provided by the market maker and trader's reservation price. And then this pricing difference can induce some traders to disregard his private information and imitate others'actions, which then produces the...