An Empirical Study of Herding in Shanghai Stock Market

A new approach is employed to test herding towards the market portfolio,which is based on the cross-sectional dispersion of the factor loading of asset pricing model within Shanghai stock market.This method not only takes the changes of fundamentals into account,but also automatically considers the effects of changes in the time series volatility.It also can reveal the dynamic characteristics of herding.The empirical results show that there exists herding towards the market portfolio in the Shanghai stock market,and the strengthening or weakening of herding corresponds to the market rising and falling.The herding is more serious when the market is rising or falling.There also is a definite herding when the market is relatively calm.This is different from the previous empirical results that herding only exists in the period of the market volatility.However,the overall trends in the market cycle and the cycle of herding is not entirely consistent.Even if there appears the unilateral rise or fall in the stock market,the herding also may complete the circulation of strengthening or weakening.This shows that the risk awareness of investors in the market constantly changes.