The Empirical Test Of Herding Effect In Chinese Stock Market Comparison Based On Different Industries

Recent years, with the rapid development of securities markets, the stock market scale and stock price level draw increasingly wide attention of the public. Especially, the stock price reflects the whole financial markets and even the overall macroeconomic operation environment more and more significantly. Some anomalies such as fierce volatility and abnormal price arise due to inadequate regulation and asymmetric information. The classic Efficient Markets Hypothesis (EMH) and Capital Asset Pricing Model (CAPM) can no longer give a precise explanation of these anomalies, and so does the rational man hypothesis, which leads to the emerging of behavioral finance, taking psychology factors into consideration to further study the mechanism of the anomalies. While herding effect, as an important branch of behavioral finance, draws increasing attention of the public.At present, there are a lot of research on herding effect across the world, mainly on the formation mechanism and empirical research. Studies in developed countries are far more established and focus on institutional investors. While situations in china are on the opposite, so it’s significant to do research on herding effect in Chinese market, not only for retailer investors are absolutely dominant in Chinese market, but also for the higher probability of market inefficient caused by policy interferes. This article takes the Shanghai and Shenzhen stock market as a whole, analyses the existence and trend of herding, as well as the difference among different industries and periodicities.The article does the empirical test among 5 different industries across different periodicities to verify the existence of herding and impacts of industries periodicity through CH model, CCK benchmark model and CCK revised model separately. After then, with the comparison of the three different models, come to the conclusion that there are nonlinear relation between the dispersion of individual stock return and market return. What’s more, distinguish the herding attribution to the nonlinear relation from the industry periodicity attribution with the comparison of the three different models. Then, compare the annual empirical test to verify the changing trend of herding in Chinese market. At last, the article provides investment and policy advises based on the empirical results.