The Evolution Of Financial Asset Price Based On Herd Behavior

ABSTRACT:This paper mainly studies how the financial asset price evolution in the case of the investors in the market are effected by most of other people's behaviors when they make a investment decision which is called herding effect. It focuses on analyzing how some of the important parameters of herding behavior and the evolution of market structure influent the financial asset price. And it provides strong evidences for the phenomenon of asset bubble or crisis even the financial storm and is worth being referenced by the supervision department.The content of paper could be divided into the following three parts. Firstly the hypothesis M=1, which means the investors reference sample size, in the traditional herding transition probability model is extended to the more actual situation of M>1. And then I studies respectively the relationships between conformity transition probability and the number of heterogeneity investors and between herding transition probability and investor reference sample size. Secondly I innovatively use the markov chain to depict the balance distribution of the number of investors and discuss how the investors parameters of M and λ effect the balance distribution. The results show that when M>1or the more the value of λ is, the larger the probability that the number of investors would become extreme value is. Finally in the hypothesis that the market is composed by two kinds of heterogeneity investors I inset the model of transition probability and sequence of the number of investors evolution evolved with time into the traditional noise trading model (DSSW) and then deduce the evolution path of risk asset price decided by these two types of heterogeneity investors. Then the sensitivity test method is used to test how the investor behavior parameters influent the balanced price qualitatively. Further I use three different statistical methods to test the relationship between investor behavior parameters and the random foam of risk assets price and the results show that when M>1or the more the value of λ is, the greater the probability and intensity of random bubble happening is.The results of this paper can accurately describe how the non-rational behaviors of investors affect the financial market that has a certain reference to our country. At present, the financial market of China has just started and is still very immature and the investors'irrational behavior feature particularly apparent in the market. So the financial regulatory departments should correctly educate the investors to identify the market risk and it is very important for healthy and stable operation of financial market to establish a highly efficient and rational macro market sentiment and investors behavior monitoring system.