Comparative Empirical Study On Herd Behavior In Stock Markets Of China And USA

Investors’herd behavior has been taken as one of the explanations of excessive volatility in financial markets and one of the important behaviors of short-term trends for a long time. Investors’herd behavior will make the asset prices deviate from its basic value, and has a profound impact on the trading strategies and asset pricing model. Therefore, there is a lot of attention on this behavior in recent years. Herd behavior is recognized as played their part in the financial crisis.In the recent financial study, empirical analysis on herd behavior of investors’ behavior got quite a lot of attention. As investors after the other actors tend to make a decision which follows the other people’s investment, thus the accumulative total of this following behavior will drive stock prices deviate from its intrinsic value. Due to the fact above that the study of herd behavior is especially important for the development of the stock market. The deviation of market price of capital relative to its fundamental value provides investors with an opportunity to earn excess profit. If market adjustment cannot let the market price convergent to its basic value, the long-term consequences of the herd behavior of blindly follow others may lead to greater instability and low efficiency on the market.Under the background of above, this paper chooses the HS state space model as the basis of this empirical research. This paper is in order to explore the difference on the degree of herding behavior on market between Chinese market and the United States market. This paper uses the data of the Chinese and the U.S. stock market to do the comparing empirical research. The empirical results show that during the study period, the Chinese A-share market and the United States stock market both have a certain degree of herd behavior. And, according to this paper’s further inspection, the same as the U.S. stock markets, the existence of herd behavior on Chinese A-share market is stable and it is influent by market volatility, stock return and other market characteristics, and company scale effect. Moreover, during the study period, the degree of herd behavior in emerging markets represented by China’s stock market emerging markets is generally higher than mature stock markets represented by U.S. stock markets. But during2008to2010, this period is the global financial crisis period which started from the United States, and the degree of herding behavior on China’s stock market is lower than the U.S. stock market. In this paper, the results of the comparing empirical on herding behavior of the stock market of China and the United States show that, the herd behavior degree on emerging market is higher than mature markets because of its investors’ understanding of the market is insufficient, and they have high speculative, combined with the supervision level is limited. And during the financial crisis, herding behavior on the financial crisis helped, and between the two pushes each other.On the basis of the above empirical research, this paper analyzes the cause of herd behavior difference between China and the United States from aspects of the stock market development and stage, market globalization, and the cultural differences between China and the United States. First of all, the development stage of the stock market would produce a great impact on the degree of herding behavior. With the continuous development of market operation, the degree of market volatility will gradually reduce, at the same time, investors’education level and understanding of the stock market will continue to improve, and the irrational herd behavior degree will reduce accordingly. Therefore, the degree of herding behavior on Chinese stock market is higher is inseparable with and the development of China’s stock market. This paper further analyzed how the degree of herd behavior may change in the stock market development process, and provides new ideas for the further research on the development course of herd behavior in the stock market. The comparing empirical results on the herding behavior of the Chinese A-share market and B-share market in this paper shows that, the stock market globalization produce a certain positive influence on the degree of herd behavior in the stock market.In addition, in the process of emerging market gradually developed into a mature market, emerging market regulatory system constantly improve, increasing investor education degree and the investor’s speculative psychology also gradually reduce, investors are more able to understand the relationship between the benefits and risks. With these changes, the irrational factors of the stock market investors’ investment behavior will reduce, and the rational degree will increase. Therefore, the degree of herd behavior in emerging markets will gradually reduce. Finally, the cultural differences between the two countries have significant explanatory power in the degree of herding behavior in the stock market.On the basis of the analysis and conclusions above, this paper puts forward some corresponding suggestions to the government regulation, financial institutions and investors.This article selects the latest data, not only using the HS basic model but also using extension models for the existence of herd behavior on China’s stock market and its stability, and on this basis to investigate the influence of stock market globalization and the development process on the degree of herd behavior in the stock market, and the cultural differences between the two countries. hese are the main innovation points in this paper. This paper hope through the above analysis has provided the new mentality for the further study of the herd behavior.