The Study Of Herd Behavior In Chinese Stock Market

With the development of modern securities markets, the price trend of stock reflects the entire financial system and the overall macroeconomic operation system more and more significantly. In the process of development of the financial market, problems such as inadequate regulation and asymmetric information cause stock market anomalies. The classic asset pricing model (CAPM) cannot accurately predict the volatility of stock price. In this case, behavioral finance emerged. It takes investors’ psychology factors and Behavioral Sciences into account to further study in the mechanism of stock anomalies. Herding is very common in such stock anomalies, which has a great impact on the development of stock market."Herd behavior" is a concept which is from biology. But when the concept applies to the stock market, it means the investors ignore their information and take the same action with others.Herd behavior has different effect on the market and it reflects the stability and maturity of the market. As the strength of herd behavior can reflect the market efficiency, the study is meaningful for the stability of our financial markets and investors’ rational investment. When collecting paper documents, I found that many scholars’ study results were different for their incomplete data, different study period and so on. So this paper analyzes the herd behavior of the Chinese stock market from2005to2013to make up for the precious shortcomings. At the same time, this paper uses CCK model and HS model to study the herd behavior in the whole period and four small stages, making the result more reliable. This paper includes several aspects as follows.In the first part, some concepts about herd behavior are introduced. Different scholars have different definitions and the methods of classification. This paper has pointed out the definition and the method of classification, which are suitable for the research. At the same time, this paper analyzes the mechanism of herd behavior, including psychology, sociology, and information. Then this paper describes some characteristics of herd behaviors, including consistency, vulnerability, phased, diversity. At last of this part, the paper analyses the influence of the herd behavior on the market, including stabilize the market and make the market unstable.The second part is about the empirical model of herd behavior, such as LSV model and PCM model, which are based on investors, CH model, CCK model, HS model, SDH model, which are based on stock price.Again, in terms of empirical research, this paper uses CCK model and HS model to do research on the A share market in China based on Shanghai-180component share. We found that significant herding behavior exists in the market in the whole stage. Further, two bull periods and two bear periods are figured out according to the Shanghai-180exponents charts. Carrying on the empirical research on the four periods again, I find out that the market in a crash is more likely to happen to herding effect significantly, which indicates that Chinese people are afraid of "losers". When the market is in a rally herding behavior also exists, but not that significantly. As time goes on, no matter in the bull market or bear market, the herd behavior is not that significant. Perhaps the stock market is maturing, or the investors are becoming rational. And maybe it’s just because of the bad performance of the market.Finally, this paper puts forward some advice on the construction of our stock market and gives some advice to our investors.