Empirical Research On Herding Effect Of China Stock Market With Financial Leverage

Compared with previous round of stock market volatility, the most obvious difference of this time in 2015 was the addition of large leveraged funds. When the A-shares was shocking at 5000 points. Until the crash on 15 th Jun, the stock market slumped 1500 points rapidly in the next than ten trading days. The adjustment of the market arouses investors panic and they try to quit from the market even though they would suffer from great loss. The leverage used by investor becomes higher and the more investor cannot afford to the risk of the stock market volatility. The lasting slump of the market will make the investor track in the difficulty of capital trample. At the same time, thousands of stocks slumped and the herd effect would lead to the more influence of capital trample.Based on such economic background, the paper use CCK-GARCH model to test the herd effect in Shanghai and Shenzhen 300 Index constituent stocks data with the selected data of 2006-2008 and 2014-2016 these two large stock market volatility in China’s stock market. The paper will test with samples to analyze whether there is herd effect in our stock market and the extent of the effect. Also the effect between two periods are compared to find out the conclusion that the herd effect of domestic stock market is lessen in the whole and the leveraged funds exacerbated market volatility so the stage herd effect appeared. In the form of falling market, the collective selling phenomenon existed commonly. It is irrational for government intervening market, which will lead to the herd effect of investors.