The Impact Of Fund Herding On Stock Price Synchronicity

Herding is a special behavior which is considered that, in the information environment of uncertainty, the behavior is influenced by other investors, imitate others decisions, or over-reliance on public opinion, regardless of the behavior of their own information. Herding seems that a large number of investors take the same investment strategy at one time, or have the same investment preferences on a specific product combinations, so that the same or similar behavior generated.Many literatures on herding of institutional investors, through on theoretical and empirical research and analysis, found that there is a certain degree of institutional investors herding, which has a significant impact on stock price volatility and market stability. Mutual funds are considered to be rational investors for the capital market, but related studies found the presence of fund herding in Chinese securities investment. Fund herding raises the suspicion of the role of promoting the market efficiency of institutional investors. Fund herding is based on a common response information or follows the trend bindly? Should they be regarded as market instability factor? In this paper, we take the stock price synchronicity as a measure of the efficiency of the capital market. At present, research on institutional herding behavior, almost blame herding as an important factor leading to volatility in the stock market, and there is little literature studying the relationship between herding and stock price synchronicity.In this paper, based on a sample of constituent stocks in the Shanghai and Shenzhen300index from2008to half of2014, we study the relationship between fund herding and stock price synchronicity Firstly, we measure the information content of stock with the stock price synchronicity, and measure fund herding based on LSV model. The further analysis is study the impact of fund herding on stock price synchronicity and the change of the impact with different ownership of institutional investors and different markets. The results show that the fund herding is based on the common reaction of information, rather than the irrational behavior of imitation, which promotes the absorption of characteristics information in stock price, and reduces the price volatility to change with the market. The empirical results also show that the proportion of institutional investors holding is higher, the greater the impact of fund herding on stock synchronicity. This is the first study on the relationship between the fund herding and the stock price synchronicity, which discusses that fund herding is based on a common response to information or blindly follow the trend. It measure a assembled state of institutional investors from a new perspective-herding. In addition, we study the change of the impact of fund herding on stock price synchronicity while the proportion of institutional investors’ownership various. It conducts come good support for the country to formulate policies to promote the development of institutional investors in the stability of the capital market, which is pushing the stock market to mature.