Empirical Analysis of Herding Behavior in the Chinese Stock Market

Abstract

This thesis examines the presence of herding behavior in the Chinese stock market, including five submarkets, Shanghai A-share, Shanghai B-share, Shenzhen A-share, Shenzhen B-share and Shenzhen second-board stock markets. We use data for the last four years during the period from January 2, 2014 to October 31, 2018 to run the regression models. According to the coefficient we get from the regression model, we can conclude there is herd behavior in the Chinese stock market and the most serious herd effect exists in the second-board submarket. It means that when the market yield stocks fluctuate more seriously, the difference between market investors’ investment decision become smaller, they all trend to pursues the same action as market shows, that is, there is a certain herd behavior. The reason is the short development time for second-board and high proportion of speculators and individual investors. Therefore, in terms of rational investment, investors need to improve their ability to acquire and analyze information. In terms of system improvement, it is recommended that relevant management can strengthen the disclosure of stock investment information, achieve open, complete, transparent and effective transmission; further strengthen guidance and education investors to make the rational investment.