Empirical Research on the Impact of Open Fund Sheep Behavior on Stock Price Volatility

Abstract

In the past, economic research took the “rational man hypothesis” as the premise, but in reality, this premise is difficult to hold. In a large number of financial practices, a large number of special phenomena that are inconsistent with standard financial theory have emerged. Behavioral finance is premised on the assumption of irrational people, and herd behavior is a relatively special irrational behavior. It refers to the behavior of investors who are influenced by other investors when the information environment is uncertain, imitate other people’s decisions, or rely too much on public opinion without considering their own information. Sheep behavior is a related behavior involving multiple investment entities, which has a great impact on the stability and efficiency of the market, and is also closely related to the financial crisis. Therefore, herd behavior has attracted widespread attention from academia, investment and financial supervision.

China’s capital market started late. In 1990, the Shanghai Stock Exchange was established, marking the birth of China’s stock market, the distribution of market investors have changed again and again, unchanged is that the behavior of investment subjects has a strong similarity, at the same time, China’s fund market has persistent fluctuations.

Whether there is a causal connection, this paper will focus on the development of China’s fund market, use LSV model and VAR test method to test and analyze the fund and stock trading data of Shanghai and Shenzhen from the first quarter of 2017 to the first quarter of 2022, and empirically study whether there is significant herd behavior in China’s open-end funds. On this basis, the impact of stock investment herd behavior on stock price volatility is empirically studied.

Finally, according to the research conclusion, from the three aspects of investor investment rationality, the effectiveness of capital market and the optimization of market structure, suggestions on how to reduce the impact of the herd effect and the healthy and sustainable development in the future.