IDEAS home Printed from https://ideas.repec.org/a/ods/journl/v5y2016i2p131-135.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://www.jami.org.ua/Papers/JAMI_5_2_131-135.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Lakonishok, Josef & Shleifer, Andrei & Vishny, Robert W., 1992. "The impact of institutional trading on stock prices," Journal of Financial Economics, Elsevier, vol. 32(1), pages 23-43, August.
    2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 24(Win), pages 14-23.
    3. Gorton, Gary, 1988. "Banking Panics and Business Cycles," Oxford Economic Papers, Oxford University Press, vol. 40(4), pages 751-781, December.
    4. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
    5. Sornette, Didier & Johansen, Anders, 1997. "Large financial crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 245(3), pages 411-422.
    6. Demirer, RIza & Kutan, Ali M., 2006. "Does herding behavior exist in Chinese stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 123-142, April.
    7. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66, March.
    8. Maria Rosaria Marcone, 2014. "Market Segmentation Strategies: A Moderate Role of Product Complexity," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 3(4), pages 238-244.
    9. Nibu Raj Abraham, 2015. "Underpricing in the Malaysian IPO Market During 2009-2014," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(4), pages 194-200, November.
    10. Froot, Kenneth A & Scharftstein, David S & Stein, Jeremy C, 1992. "Herd on the Street: Informational Inefficiencies in a Market with Short-Term Speculation," Journal of Finance, American Finance Association, vol. 47(4), pages 1461-1484, September.
    11. Brennan, Michael J, 1990. "Latent Assets," Journal of Finance, American Finance Association, vol. 45(3), pages 709-730, July.
    12. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-479, June.
    13. Stijn Claessens & M. Ayhan Kose, 2013. "Financial Crises: Explanations, Types and Implications," CAMA Working Papers 2013-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    14. Jacklin, Charles J & Bhattacharya, Sudipto, 1988. "Distinguishing Panics and Information-Based Bank Runs: Welfare and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 568-592, June.
    15. Jagan Gaur & Mihir Dash, 2015. "Macroeconomic Factors and Performance of Indian Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(1), pages 11-15.
    16. Mihir Dash, 2015. "A Study of Granger Causality in Asian Stock Markets," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(3), pages 145-150.
    17. Greg M. Richey, 2014. "Can Naughty Be Nice for Investors: A Multifactor Examination of Vice Stocks," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 3(3), pages 162-169.
    18. Anatoliy G. Goncharuk, 2012. "What investments are most effective during the financial crisis?," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 1(1), pages 5-7.
    19. Mihir Dash & Silky Sonthalia Sundarka, 2015. "Testing the Stationarity of Beta for Automotive and Auto-Ancillary Sector Stocks in Indian Stock Market," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 4(2), pages 76-81.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hirshleifer, David & Teoh, Siew Hong, 2008. "Thought and Behavior Contagion in Capital Markets," MPRA Paper 9164, University Library of Munich, Germany.
    2. Puput Tri Komalasari & Marwan Asri & Bernardinus M. Purwanto & Bowo Setiyono, 2022. "Herding behaviour in the capital market: What do we know and what is next?," Management Review Quarterly, Springer, vol. 72(3), pages 745-787, September.
    3. Guney, Yilmaz & Kallinterakis, Vasileios & Komba, Gabriel, 2017. "Herding in frontier markets: Evidence from African stock exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 152-175.
    4. Uchida, Hirofumi & Nakagawa, Ryuichi, 2007. "Herd behavior in the Japanese loan market: Evidence from bank panel data," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 555-583, October.
    5. Economou, Fotini & Gavriilidis, Konstantinos & Goyal, Abhinav & Kallinterakis, Vasileios, 2015. "Herding dynamics in exchange groups: Evidence from Euronext," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 34(C), pages 228-244.
    6. Welch, Ivo, 2000. "Herding among security analysts," Journal of Financial Economics, Elsevier, vol. 58(3), pages 369-396, December.
    7. Devenow, Andrea & Welch, Ivo, 1996. "Rational herding in financial economics," European Economic Review, Elsevier, vol. 40(3-5), pages 603-615, April.
    8. Andrikopoulos, Panagiotis & Kallinterakis, Vasileios & Leite Ferreira, Mario Pedro & Verousis, Thanos, 2017. "Intraday herding on a cross-border exchange," International Review of Financial Analysis, Elsevier, vol. 53(C), pages 25-36.
    9. Pegah Dehghani & Ros Zam Zam Sapian, 2014. "Sectoral herding behavior in the aftermarket of Malaysian IPOs," Venture Capital, Taylor & Francis Journals, vol. 16(3), pages 227-246, July.
    10. Ebrahimi Kahou, Mahdi & Lehar, Alfred, 2017. "Macroprudential policy: A review," Journal of Financial Stability, Elsevier, vol. 29(C), pages 92-105.
    11. Acharya, Viral & Yorulmazer, Tanju, 2003. "Information Contagion and Inter-Bank Correlation in a Theory of Systemic Risk," CEPR Discussion Papers 3743, C.E.P.R. Discussion Papers.
    12. Imran Yousaf & Shoaib Ali & Syed Zulfiqar Ali Shah, 2018. "Herding behavior in Ramadan and financial crises: the case of the Pakistani stock market," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 4(1), pages 1-14, December.
    13. Cai, Fang & Han, Song & Li, Dan & Li, Yi, 2019. "Institutional herding and its price impact: Evidence from the corporate bond market," Journal of Financial Economics, Elsevier, vol. 131(1), pages 139-167.
    14. Shi, Guiqiang & Shen, Dehua & Zhu, Zhaobo, 2024. "Herding towards carbon neutrality: The role of investor attention," International Review of Financial Analysis, Elsevier, vol. 91(C).
    15. Li, Wei & Rhee, Ghon & Wang, Steven Shuye, 2017. "Differences in herding: Individual vs. institutional investors," Pacific-Basin Finance Journal, Elsevier, vol. 45(C), pages 174-185.
    16. Charilaos Mertzanis & Noha Allam, 2018. "Political Instability and Herding Behaviour: Evidence from Egypt’s Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1), pages 29-59, April.
    17. Galariotis, Emilios C. & Krokida, Styliani-Iris & Spyrou, Spyros I., 2016. "Bond market investor herding: Evidence from the European financial crisis," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 367-375.
    18. Gavriilidis, Konstantinos & Kallinterakis, Vasileios & Ferreira, Mario Pedro Leite, 2013. "Institutional industry herding: Intentional or spurious?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 192-214.
    19. Andrikopoulos, Panagiotis & Gebka, Bartosz & Kallinterakis, Vasileios, 2021. "Regulatory mood-congruence and herding: Evidence from cannabis stocks," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 842-864.
    20. Oi-Ping Chong & A.N. Bany-Ariffin & Annuar Md Nassir & Junaina Muhammad, 2019. "An Empirical Study of Herding Behaviour in China’s A-Share and B-Share Markets: Evidence of Bidirectional Herding Activities," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 37-57.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ods:journl:v:5:y:2016:i:2:p:131-135. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anatoliy G. Goncharuk (email available below). General contact details of provider: https://edirc.repec.org/data/dmonaua.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.