Herd Behavioral Research On The Chinese Security Investment Funds

In China's security market, individual investors are in the majority. It is believed that the investing structure that based on most individual investors is one of the biggest reasons that create violate volatility of the security market. According to the common rules of security market development globally, institutionalize of investors is the main direction of the development of security markets. Increasing the proportion of institutional investor could not only stabilize the security market, but also elevate the effectiveness of the market. Since 1990, investment funds have been developing gradually in our country's security market, based on a series of supporting policies announced by our country. As an important part of institutional investors, security investment funds play a critical role in the market. However, as the number increasing and scale expanding of security investment funds, our nation's security market still fluctuate a lot in the short time period. It is argued that although the institutional investors have developed a lot, they have not acted the function of stabilizing the market. Researches indicate that the behavior of security investment funds is not absolutely rational. Their behavior has the irrational side and "herd behavior" is one example of this irrational side. Herd behavior involves investment behaviors of different investment entities and it will unstabilize the market, as well as large scales of chain reaction. Considering the negative effects that herd behavior can bring to the market, it is necessary to conduct researches of the herd behaviors of security investment funds in our country. This paper was developed in the basis of international researches of herd behavior of security investment funds and contains LSV statistical model. Through the analysis of investment portfolios in China's security market in the time period from July 2005 to June 2009, I found that herd behavior exits a lot in both "bull market" and "bear market" in the security investment funds in China. In addition, through the in-depth analysis of the reasons of herd behavior of China's security investment funds, this paper gives a series of policy suggestions and hopefully these policy suggestions could be helpful in regulating investment activities of China's security investment funds as well as reducing herd behaviors. Thereby a good investment atmosphere could be established in China's security market.