Excessive Volatility Puzzle Of China's Stock Market And Investors' Herd Behavior

The Chinese stock market ups and downs phenomenon, as well as short-term stock market crash event triggered by stamp raised in May 30, 2007, has been unable to been explained satisfactorily by the assume that the efficient markets and rational human from standard finance theory.Firstly, using econometric methods and data of the stock market during 2002.2014 to empirical research, the results show that China's stock market in terms of stock price relative to its fundamental value the vision of "excessive volatility" is existed, and constant coefficient excess return model can not explain the vision.Getting investor sentiment by using Kalman filtering method and put it into the model to test the reason of "excessive volatility mystery" once again, meanwhile, the results show that market sentiment able to provide an additional explanation to "excessive volatility".Secondly, the use of agent-based computational finance(ACF) to build an artificial stock market model and meet Chinese stock market characteristics and contains herd behavior of investors. Through multiple analog output data sequence, testing results showed that the herd behavior of investors by affecting market sentiment, leading to artificial stock market produce "excessive volatility" and the collapse phenomenon.Finally, based on the two root causes of herd behavior of investors that normative influence and informational influence from the perspective of behavioral finance, proposed that in order to avoid market "excess volatility" and crash, government and regulatory authorities:(1) Should reduce the direct regulation of the stock market and reduce "policy market" effect of China's stock market, avoid investors to form policy suit as well as speculation seriously atmosphere which led to stock market volatility and even bubble, should give full play to the functions of regular supervision, let the market play a decisive role in the configuration of the resource.(2) Should guide rational behavior of investors, and suppress chase sell emotions arising due to herd in investors. It is necessary to increase the proportion of value investors in the institutional and retail investors, strengthen its code of conduct, and effectively play its role of stabilizing the market. Meanwhile, it is necessary to improve the transparency of information in security market so as to enhance market efficiency, foster reasonable expectations of investors, thus promoting the formation of asset prices reasonable.