Empirical Study Of Herding In China’s Second Board Market

Herd behavior was firstly used to describe the phenomenon among investors about mutual imitation and using other people’s transaction information in stock trading. It is one of the research focus in Behavioral Finance, because this phenomenon can not be explained by using the mainstream financial theory. Herd behavior is a common phenomenon in the stock market, however its results often magnify the effect of chasing the winner and cutting the loser, which greatly threat the market efficiency and stability, and even lead to financial crisis in serious situation. It is noteworthy that China’s second board market is hoping to become Chinese version of "NASDAQ". It takes the responsibility of providing an effective financing channel for the small and medium enterprises, promoting innovation and accelerating the transformation of economic development. So it is particularly important of whether it can maintain a healthy and stable operating state. It is particularly important to research the herd behavior in China’s second board market and on this basis to explore how to promote the healthy and stable development.This paper firstly analyzes the research background and significance of the herd behavior in China’s second board market, and the study of herd behavior at home and abroad. The second chapter introduces the origin and development of herd behavior, describes the causes of herd behavior, including both rational factors and irrational factors, and by analysis, we believe that the rational factors are more important than irrational factors. Then we analyze the negative impact of herd behavior on the stock market, proposes that herd behavior can lead to the interruption of market information transfer, the loss of efficiency, the instability and the vulnerability of stock market. In the third chapter, a general analysis is conduct towards the herd behavior in China’s second board market. We introduce the entire development process of the second board market from the origin to the official launch, and also introduce the feature of listed companies on the growth of the number and the distribution of the established time and the industry. Then we combine the causes of herd behavior in the previous chapter with the characteristics of the second board market to analyze of the possibility of the existence of herd behavior in China’s second board market. The fourth chapter does empirical research in the herd behavior of China’s second board market. Firstly we make a comparative analysis by using different empirical models to find more suitable model for this study. In the course of empirical research, taking into account of the characteristics of China’s second board market, we design a new model to test again, but the new model gives a different result. We analyze the reasons of this result and get a conclusion that herd behavior is exist in China’s second board market to a extend. In the fifth chapter, we summarize the conclusions of this study, and then give the recommendations for restraining the herd behavior of China’s second board by analyzing the theoretical and the empirical research results. Finally, we point out the limitations of the research and make perspective for future research.