The analysis of herd behavior in Chinese stock market

Abstract

The purpose of this paper is to test the existence of the herding effect in the Chinese stock market by an empirical method and to find out the influence of herding behavior on the Chinese stock market. Herd behavior of investors is often used to explain excessive volatility in financial markets and short-term price changes, which makes stock prices deviate from their basic values, and has a great impact on investors' trading strategies and capital asset pricing models. First, the whole stock market is taken as the research object, and the herding behavior of the whole market is judged by regression analysis of index such as stock return dispersion. The other direction is to take institutional investors as the research object and to judge the existence of herding behaviors of institutional investors in the stock market by studying the proportion of institutional investors in unilateral transactions. In conclusion, the dispersion index and a regression model would be used to verify the existence of herd behavior, and the impact of Shanghai and Shenzhen 300 stock index on herding behavior, and the empirical test of herding behavior in several different industries. Finally, investment and policy recommendations are given according to the empirical results.