Herd Behavior In Chinese Stock Market: An Perspective Of Culture And Institution

This paper researches Chinese investor's herd behavior in stock market with the perspective of Confucian cultural tradition and the unique market system of the transition period and argues that investors only have limited rationality in complex social situations. Their behaviors are subject to socio-cultural traditions and bounded by the institutional framework. And their behaviors have two sets of reference system, which are the inherent micro-macro-cognitive psychology and the external social environment. On this basis, the author uses the constraints of Chinese Confucian culture and the imperfect market system of the transition period to research the formation mechanism of the herd behavior of Chinese investors. It is concluded that the Confucian cultural makes Chinese investors'decision-making process in a herd mentality, authority orientation, relationship orientation and intuitive dependence; transition and emerging market characteristics make Chinese investors have a significant psychological dependence on policies and neglect the public information in the market, keen to seek "gossip" and "insider information", this leads to the systematic behavioral biases of investors. These impacts of culture and institution have led Chinese investors to a greater tendency of herd behavior.In order to obtain empirical support for the theoretical analysis, the author through the questionnaire survey to research Chinese investor'unique psychological characteristics and it is concluded that Chinese investors have a greater tendency to herd and have a significant psychological dependence on policies and? have not formed a modern investment philosophy. These conclusions strongly support the previous theoretical analysis of this paper.Then this paper uses CCK model to test the Chinese investors'herd behavior in stock market. The data sample is selected from the daily return of constituent stocks in SSE 50 Index and the sample periods are from July 4th, 2006 to December 31st 2009. The empirical results show that there is a significant herd behavior in Chinese stock market and the herd behavior has a significant effect of asymmetry. The empirical results also effectively verify the theoretical assumptions of this paper.Finally, the author gives the policy implications based on the research findings.