Empirical Analysis of the Chinese Institutional Investors' Herd Behavior

Abstract

In financial markets, herd effect refers to an irrational behavior of investors imitating the decisions of others. The objective of the work is to examine whether there is a herd effect among institutional investors in the Chinese market. In order to realize the objective of the work, we introduced the methodology of this thesis in Chapter 2, including efficient market hypothesis, behavioral finance, among which we mainly introduced the herd effect. Chapter 3 describe the methodology for empirical analysis of herd effects, including economic models for quantitative analysis of herd effects. Among them, the IPCSAD model was finally applied in the empirical analysis in the Chapter 4. Then we presented statistical methods, which mainly included the methodology of regression models. Chapter 4 is the most important part of this paper. We described the selected market and data collection firstly, then we made an empirical analysis. Finally, we obtained an improved regression model with greater explanatory power through adjustment. From the results presented by the regression model, we conclude that there is no herd effect for institutional investors in the Chinese market in the selected time period.