Research on Herd Behavior of Fund Companies and the Funds´ Equity Investments

The current measure method of LSV herd behavior is inadequate, which makes the coefficient of herd behavior smaller, the paper makes the improvement based on this problem. By using the sample data of fund companies´ weightiness stock of WIND database from 2003 Q1 to 2009 Q2, the paper carries out the research on general, buyer and seller herd behavior of fund companies and their funds. The results show that: (1) The traditional LSV methods underestimate the funds´ herd behavior, the coefficient of the general, seller and buyer herd behavior is underestimated by 5.61%, 7.55% and 4.10% respectively; (2) The coefficient of seller herd behavior is higher than the one of buyer herd behavior, that means the fund companies and their funds show a stronger herd behavior when selling stocks than buying stocks; (3) The general and seller herd behavior of funds is higher than the one of fund companies, while the buyer herd behavior of funds is lower than the one of fund companies; (4) The general, buyer and seller herd behavior of fund companies show a positive correlation with Shanghai Composite Stock Index, but this correlation is not significant; (5) The coefficient of general and buyer herd behavior of fund companies is minimum when the stock market drops by large amounts; the coefficient of general and buyer herd behavior of fund companies increases, and the coefficient of seller herd behavior decreases when the stock market drops by smaller amounts; the coefficient of the general, buyer and seller herd behavior is maximum when the stock market goes up by smaller amounts; the coefficient of the general, buyer and seller herd behavior decreases when the stock market goes up by large amounts.