Research and Analysis on Herd Behavior of Individual Investors

Abstract

Based on the development of China's financial market later than the western markets, the professional level of individual investors and market supervision are undeveloped than the western markets. In the process of capital market gradually internationalization, China's individual investors are face some problems which will be reflected in herd behavioral effects. In the investment market, herd behavior refers to the phenomenon of individuals giving up their own ideas, and their own information to make investment decisions consistent with the group's investment decisions. Generally speaking, individual investors buy blindly when the stock trading volume clearly increases, but blindly sell when the stock trading volume obviously declines that resulting in large fluctuations in stock prices. This paper analyzes the influence of herd behavior on individual investors by two cases. It focuses on the particularity of China's financial market analysis. It analyzes and compares specific positive and negative effects of the herd behavioral caused by individual investors. Individual investors should fully aware of their strengths and weaknesses on investment strategies. There is little chance of absolute reasonable. In order to avoid losses, individual investors should improve their judge abilities and keep a clear thinking. As for the regulators, they should increase investment education for individual investors, promote rational investment, open markets and improve institutions.