Empirical Study Of Herding Effects In Shanghai Capital Markets

As the main participants of the capital market,investors will influence the stock market price when making investment decisions,and the stock market as a barometer of the market reflects the state’s macroeconomic operation.Therefore,it is important to analyze the regular behavior of investors’ investment decisions.With the development of finance,more and more studies have found that market participants’ rational human hypothesis and market effective hypothesis are increasingly unable to explain the actual operation of the market.The subjective factors of market participants’ psychology and emotions will affect the stock market price fluctuations.It is difficult to explain this phenomenon in traditional financial theory.Therefore,behavioral finance is produced,while the herding effect is a manifestation of behavioral finance.The essence is the follow-up behavior brought by the irrational herd mentality caused by investors in the pursuit of maximization of interests.Due to factors such as incomplete market information,reputational risk and reward incentives,investors choose to follow the behavior of other investors to invest,and some investors sometimes make decisions based on information obtained from other investors nearby,rather than relying on themselves.Information and analysis.Specifically,at the same time,the investment decision chosen by the investor is the same as that of other investors.This consistent behavior and synchronicity of behaviors performed during the same time period is an intuitive manifestation of the herding effect.China’s stock market is still in the development stage,the mechanism is not mature,and individual investors account for the vast majority of investors,and there is a clear irrational investment tendency.Moreover,influenced by Chinese policies,market follow-up behavior is more likely to lead to market failure.In this case,it is especially important to study the impact of the herd effect on the stock market.Based on the theory,this paper summarizes the concept of the herd effect and related theories and analyzes the causes of the investor’s herding effect including the incompleteness of information,the reputation of the agent and the salary structure.Based on the basic concept of herding effect,this paper proposes the existence and detection method of asymmetric herding effect.In the empirical research model,this paper uses the CCK model to empirically study the asymmetry of the herd effect and industry differences.First,we tested whether there is a herd effect in the Shanghai B-share market to confirm previous research findings that there is no evidence that the herd effect in China’s B-share market is still valid.Our new test period is 2010/1/1.2018/12/31.The data shows that past research results have not changed in recent years,and we found no significant herding effect in the market.Second,using stocks in the B-share market in Shanghai,we have built a portfolio of equal-weight stocks by industry to test whether the specific industry characteristics of each industry will lead to aggregation effects in specific industry returns.In this study,we investigated the benefits of seven industries,including automotive,energy,finance,IT,real estate,transportation,and utilities,and found evidence of industry-specific aggregation effects in several industries in this study.Through industry segmentation,empirical analysis of the differences in herding effects in different industries.Based on the results of empirical analysis,this paper proposes strategies for the allocation of China’s stock market industry.