The Comparative Study Of The Herding Effect In Growth Enterprise Board And Shenzhen Main Board Market

Herding behavior in capital market is a kind of irrational behavior, it will affect the market price discovery and resource allocation functions. In addition, herding behavior will cause the stock price to deviate from its reasonable price, aggravate the fluctuation of the stock price and bring the market to instability. So it makes important sense to study the effect of herding behavior in capital market. In recent years, it is more and more widespread concern on small and medium-sized market and growth enterprise board in China’s stock market. The government which is vigorously supporting the development of the small and medium-sized market and growth enterprise board market put forward clearly to want to accelerate the development of the small and medium-sized board market and growth enterprise board market as well as increase direct financing of enterprises in small scale. This is mainly attributed to the small and medium-sized enterprises encountered greater difficulties in indirect financing from financial institutions such as banks when small and medium-sized board market and growth enterprise board market are playing a more and more important role in solving the financing difficulties of small and medium-sized enterprises and constructing financial support system. As one aspect of behavioral finance theory, herding effect makes impact on the stock price and the small and medium-sized enterprises’ financing, so it makes important sense to study herding effect of China’s small and medium-sized board market and growth enterprise board market for the development of small and medium-sized board market and growth enterprise board market. For the growth enterprise board, on one hand, most of listing corporation on the main board market which was established earlier are large and mature enterprises and the main board market could largely reflect the economic development. On the other hand, the small and medium-sized market was ready for the establishment of growth enterprise board. In other words, the small and medium-sized market was just transition for growth enterprise board market. Therefore the research on the herding effect of growth enterprise board and main board market has more significance. Through studying the herding effect of the two markets, we will achieve the cause of China’s stock market herding effect and draw more meaningful conclusions.Firstly, this article introduces some domestic and abroad literature on the herding effect. The domestic and foreign scholars mainly use three kinds of methods to test the herding effect in the capital market, whereby the LSV method which tests herding effect in fund managers, the CH method and CCK method which test herding effect in investors. CH method and CCK method both test herding effect in investors, CH method thinks that the cross section with the standard deviation CSSD of stock returns will decrease as the absolute market yield increases when the stock market exists herding effect. But it should be pointed out that only when most investors have serious herding behavior, the cross section with the standard deviation CSSD of stock returns will decrease as the absolute market yield increases. Therefore, the CH method can only detect serious herding effect and it is difficult to detect slight herding effect in the market, while the CCK method overcomes the defect. It uses cross-sectional absolute deviation CSAD to examine the herding effect, when the market herding effect is not serious, cross-sectional absolute deviation CSAD will still decrease as the absolute market yield increases but rate of decrease will slow, that is CSAD and the absolute market yield will show a nonlinear relationship. Therefore, the CCK method can quickly test the slight herding behavior. In view of this, this paper uses the CCK method to examine herding effect in China’s growth enterprise board market and Shenzhen main board market. In addition, it uses HS method to examine the varying degrees of herding effect. When berta coefficient cross-sectional dispersion Ht reduces significantly, the herding effect degree increases gradually. We regard Shanghai Shenzhen300index return as the market rate of return and July5,2010to January6,2012as the sample interval. It includs Shanghai Shenzhen300price index rising phase from July5,2010to November5,2010, Shanghai Shenzhen300price index adjustment phase from November8,2010to April8,2011and Shanghai Shenzhen300price index falling phase from April11,2011to January6,2012. We will test the rising phase and the falling phase of the herding effect respectively. On the sample data, we select the week returns ratio data and return Beta240rolling data of the price index on growth enterprise board and Shenzhen component index constituent stocks which is provided by the RESSE financial research database from July5,2010, as well as the market rate of return in Shanghai Shenzhen300index week returns ratio data. Secondly, testing the existence of nonlinear relationship between the cross section of absolute deviation CSAD of stock returns rate relative to the market rate of return and market returns through the CCK method to determine the existence of herding effect. Then, examining the varying degree of herding effect by HS method. It shows that herding effect exist in the rising phase of the market in Shenzhen main board market and the growth entrprise board market and as the market index rises, herding effect degree enhances. Besides, herding effect only exist in the falling phase of the market in Shenzhen main board market and at the beginning the herding effect has no enhancement, thereafter suddenly increases substantially, and then decreases gradually. Finally, analyse comparative the herding effect and degree of variation in growth enterprise board market and Shenzhen main board market. There are mainly six aspects leading to the herding effect, it includs the lack of short selling mechanism, information asymmetry, policy intervention, herding behavior of fund managers, irrational behavior of investors and technical analysis. In view of these six aspects, this paper puts forward some suggestions to the government regulators and investors in order to prevent bad influence which the herding effect brings.