Empirical Test Of Herding Effects In China's Main Board Market

The classic financial theory holds that stock investors are rational,and they often make their own utility-maximizing investment decisions based on the available investment information.However,the emergence of a series of financial visions has brought this classical theory of finance a lot of attacks.Economists have found that investors' personality,psychological activity and other factors play an important role in the investment process through experimental research and empirical analysis of the psychological activities.Investors will not only be affected by these factors in the investment process,but also be affected by other investors and market factors.The field of finance started the research of behavioral science on decision-making,and developed into behavioral finance gradually.Many financial phenomena elaborated by behavioral finance also exist in our financial markets.The most common phenomenon is herding.Herding behavior is one of the "market anomalies" in the financial market,which means investors may take the same actions when they make their own investment strategy because of the influence of others.Herding,which may affect information tide,price fluctuation,is even the root cause of the financial crisis and the bubble.So,the research on herd behavior has been widely concerned by academics and government regulators.This paper introduces the research background of the herd effect,clarifies the definition and characteristics of it,analyzes the causes of the herd effect from multiple perspectives,and takes China's main board market as the research subject,whose purpose is to make an empirical test about the herding effects of the main board stock market.The data used in this paper comes from the main board market in China.Generally,the companies listed on the main board market are comparatively good traditional industries with relatively good development prospects.Compared withother industries,their assets are much larger and the returns on investment are relatively high and stable,and can largely reflect the economic situation in our country.Last but not the least,models and methods are discussed on generating proxy variables and testing herd effect.Here we use the method of CSAD to build the herd effect index and test the Shanghai and Shenzhen stock markets 2014-2016 A-shares and B-shares,which proves that the Shanghai and Shenzhen stock markets exist herding effect obviously,and the herding effect when the stock market goes up is much more obvious than that when the stock market goes down.This means that the investors in Shanghai and Shenzhen stock markets tend to chase higher than lower.Then,when analyzing the robustness of the herding effect in the stock markets of Shanghai and Shenzhen stock markets,we find that,first,when the district of the stock market is considered,the herding effect is the strongest in the central region,followed by the eastern region and the western region is the weakest;second,under the circumstance of sub-industries,the herd effect of stocks in the non-cyclical industry and the comprehensive industry is much more stronger,and the stock herd effect of the cyclical industry is the weakest;third,in the sub-period test,this paper finds that the herding effect in Shanghai and Shenzhen stock markets is less drastic in 2014,and there is no obvious herding effect in 2015,and the herd effect is rather severe in 2016.Based on the above findings,this paper makes some suggestions from the perspective of government supervision,individual investors and investment agency at the end.