An empirical study of herd behavior in china’s equity markets

• 1、Department of Economics,DUT

Abstract：Based on the two equity return dispersion measurements CSSD and CSAD which was presented by Christie and Huang (1995) and Chang et al.（2000）,this paper examines the presence of head behavior in Shanghai and Shenzhen equity markets by establishing a non linear model. It concludes that herding in Shanghai and Shenzhen equity market is significant in the individual empirical test of Shanghai and Shenzhen equity markets, and the evidence of herd behavior is more significant in up markets than the whole markets, while there is no evidence of herding in down markets. By comparing the two empirical test using CSAD and CSSD, it can be found that CSAD is a better measurement in measuring the dispersion of equity return. By analyzing the relationship between systematic risk and herd behavior it can be concluded that the systematic risk of china’s equity market is higher than that of America and Japan markets. The proportion of the total risk which the systematic risk takes in china’s market is six times than American market but it is similar with the other emerging markets like South Korea and Taiwan.

Keywords： Herd behavior Capital asset pricing model Cross-sectional absolute deviation(CSAD) Cross sectional standard deviation of returns(CSSD)