Evaluation of the Herd Effect in Selected Stock Markets

Abstract

The herding effect of the stock market is one of the most essential parts of modern behavioral finance and gains substantial amount of attention from domestic and foreign scholars. By examining the herding effect, we can better understand the causes of investors irrational investment behavior. And relevant policy recommendations can be made accordingly, in order to improve the effectiveness of the stock market. In this thesis, the aim is to test the presence of herd behavior in the Chinese stock market and the U.S stock market, including four submarkets: Shanghai stock market, Shenzhen stock market, New York Stock Exchange and NASDAQ stock market. Meanwhile, by comparing different investment behavior between China and United States’ investors, we can find out how to eliminate the herd behavior. We use data from January 4, 2017 to December 31, 2020 to run the regression models. And then according to the regression results we can know whether there is a herd behavior and which market exists the most serious herd effect.