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A Study of Herd Behavior Based on the Chinese Stock Market

Author

Listed:
  • Yu Zhang

    (Shanghai University, China)

  • Xiaosong Zheng

    (Tallinn University of Technology, Estonia)

Abstract

Traditional finance theory is based on Efficient Market Hypothesis, while irrational behavior is examined to exist in security market. Behavioral Finance is introduced and developed to explain market anomalies, which incorporates psychology, sociology and other subjects of research methods into the study of investment behavior to explain how investors handle the information and take actions. Herd behavior of investors is a special irrational behavior and an important research of behavioral finance. Investors with herd behavior will be influenced by others easily and over-reliance on public opinion instead of own information and situation when making investment decisions. As herd behavior will have a large influence on stability and efficiency of financial market and even results in financial crisis, government and academia pay extensive attention to the study of herd behavior and produce some theories to examine it, such as LSV model, PCM model, CAPM model, CH model and CCK model. Among them, LSV model, as a classic method, is used most frequently to examine institutional investors. This paper states relative definition of herd effect, reviews theoretical models and uses LSV model as the methodology to examine the herd behavior of Chinese institutional investors in 2014. The results show that obvious herd behavior exists in Chinese security market.

Suggested Citation

  • Yu Zhang & Xiaosong Zheng, 2016. "A Study of Herd Behavior Based on the Chinese Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(2), pages 131-135, May.
    • Handle: RePEc:ods:journl:v:5:y:2016:i:2:p:131-135
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    References listed on IDEAS

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    Cited by:

    1. Mihir Dash, 2017. "A Study of Granger Causality in Latin American Stock Markets," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 6(2), pages 82-88, May.
    2. Anurag Agarwal & Ajay Verma & Rajiv Kumar Agarwal, 2016. "Factors Influencing the Individual Investor Decision Making Behavior in India," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 5(4), pages 211-222, November.
    3. T. Mohanasundaram & P. Karthikeyan, 2017. "Decisive Economic and Stock Market Indicators on Foreign Institutional Investments: Evidence from India," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 6(1), pages 43-57, February.

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