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Herding Basic definition [Herd Effect] Placed horizontally in front of a stick in a flock of sheep, the first sheep jumped in the past, second only, and a third will follow the jump in the past; this time, stick to Flanagan to withdraw behind the sheep, came here, still Like sheep, like the previous upward jump about, although blocking stick has gone, this is the so-called "herd behavior" also known as "herd mentality." Refers to the management of some enterprises in market behavior of a common phenomenon. It is due to insufficient information and lack of understanding would be difficult to uncertainty about the future of the market to make reasonable the Yu Qi, often through observation of the behavior around the Renqun Tiqu information, the information in Zhezhong the Buduanchuandi in Many people will be roughly the same information and strengthen each other, resulting in herding. "Herd behavior" is the result of rational behavior by individuals collectively irrational behavior of a nonlinear mechanism. Herding the field of behavioral finance is typically a phenomenon of the mainstream financial theory can not explain. Often used in economics, "herding" to describe the psychological economic individual herd to follow suit. Flock is a very scattered organization, usually with the left and right is blind to the collision, but once there is a sheep moving up, the other sheep will herd phenomenon without hesitation, without regard there may be a wolf in front of or near Department has a better grass. Therefore, the "herd behavior" is the metaphor of people have a herd mentality, herd mentality can easily lead to blind obedience and blind obedience often find fraud or failure. The emergence of herding the general in a very competitive industry, but also the industry has a leader (leader) occupied the major attention, then copied by the entire flock will be the leader's every move, the lead Where sheep "graze", where the other sheep, "Gold Rush" Related Stories There is humor reflects the herding: An oil tycoon to heaven to attend the meeting, a discovery has been packed into the conference room, no place taking a seat, so he had an idea called: "the discovery of oil the hell!" This call does not matter if the oil tycoons in heaven Hell have to go, and soon, in heaven who later left with a. Then, the tycoon thought, we all ran in the past, is it really the discovery of oil the hell? Then, he hastily ran to hell. Herding is the metaphor people have a herd mentality, herd mentality can easily lead to blind obedience and blind obedience often find fraud or failure. French scientist Jean Henri Fabre have done a pine experiment. He put some pine on the edge of a pot to make it end to end phase in a circle, not far from the pot, then sprinkle some pine caterpillars like to eat pine needles, pine around the beginning of a with a another enclosure pot lap to go. The walk is seven days and nights, hunger, tired of dead pine caterpillars count them out. But sadly, as long as any one can eat mouth slightly changing the route of pine needles. Animals, so people are not necessarily smarter. Social psychologists study found that affect the herd of the most important factor is the number holding a certain number of views, not the opinion itself. Were more persuasive in itself, very few people will insist on unanimous cases, their different opinions. "The masses have sharp eyes," "wood show in the forest, the wind will destroy the" "first rotten rafters in his early" These doctrines closely tied to our actions. The late 20th century, the Internet economy soared, ". Com" companies blossom everywhere, all the investors are staking their claims to sell the concept, IT industry CEO who burn in the game, burning the amount of stock will rise much, so, the more and more and more people are turning back to forging ahead. 2001, and once the bubble burst, vanity make casual, we discovered that in the frenzied market atmosphere, profit is the leader, the rest follow suit of the have become victims. The media often serve as instigators of herding, a rumor through the newspaper will become a recognized fact that a point can become public through television. Demonstrations, election rally, suppression of dissent and other political art is not in the use of non-herding. Of course, there's something there are always reasonable, herding is not necessarily good for nothing. This is the nature of the optimization rules, information asymmetry and the expected uncertainty in the conditions, see how others do indeed lower the risk (which in game theory, Nash equilibrium has also instructions). Herding demonstration study can produce synergy effects and aggregation, which for the protection of vulnerable groups and development is helpful. Herding tell us: the information to others, not all letters are not from time to believe, all things have their own judgments, surprisingly to winning, but the follower has the advantage, often way is not fixed! Life herding A man running in the streets during the day, everyone ran with the results, in addition to the first person, we do not know the reasons for running. People have a herd mentality, the resulting phenomenon of blind obedience is the "herding." Many times we had to give up their individuality to "follow the crowd" because each of us can not possibly know everything was crystal clear, for those who do not know, not sure what is often "go with the flow." Holding a view of the number of affected herd is the most important factor, very few people able to unanimous cases, adhere to their own opinions. Pressure is another deciding factor. Within a group, who made the unusual behavior, often lead to "betrayal" of the suspects, will be isolated, or even punished, and thus the behavior of members within groups is often a high degree of consistency. "Herding" tells us that many times, not saying that as - "the masses have sharp eyes." In the market the general public, they often lose their basic sense of. People like to join in the fun, along with other people. The eyes of the masses of information media is also to invest, and want to be the basis to judge. However, the media were also ordinary people, not your eyes, you will not lose the direction to identify spam. Therefore, the collection of information and keen to be judged, is to allow people to reduce their herd behavior, more rational use of their own best way. And guide the rational use of herd behavior, you can create a regional brand and scale effect, and thus get better results more good than harm. Find a good leader is to use the key to herding. For individuals, with the rear end in the footsteps of others will inevitably be eaten or eliminated. The most important thing is to have their own ideas, do not take the unusual way is a shortcut to your stand. Whether to join an organization or own businesses, to maintain innovation and independent thinking are essential. Stock Market herding In the capital markets, "herding effect" refers to an investment group, individual investors are always under the action of other similar actions of investors in buying when others buy, sell when others sell at. Lead to "herding" There are other factors, for example, some investors may think that the same groups, others in more information superiority. "Herding" mechanism may also be triggered by the system. For example, when a sudden fall in asset prices caused losses, in order to meet margin requirements or to comply with restrictions on trading rules, some investors have had to cut positions in its holdings of assets sold. In the current enthusiasm for substantial increase in the stock market situation, the rapid accumulation of individual investors, energy, easy to form a convergence of herd behavior, chasing rush with confidence when brought out diving when the broader market, panic began a chain reaction, have panic escape, so when diving Liangnengfangtai also normal. Only then easily kill the stock price on the floor. This is why the bull market in fast or slow up, and sell into corrections often the root causes of a place. But we need to remember that, in general, not out when the rapid sell into corrections. Rational herd behavior and the stock market the unity of opposites Stock market investor herd behavior is the presence in the trading process of learning and imitation behavior, resulting in a certain period of time in the same shares traded. Keynes pointed out long ago: "to engage in stock investment is like a beauty pageant contest, who selected the choice of the average results of all the nearest-loving, who can award; so each participant will not vote for him who they think best, but the use of intelligence, suggesting that most people think the most beautiful person. "visible, herd behavior is out of a sense of belonging, a sense of security, and information cost considerations, small investors will take the public and follow the leader follow the principle of direct imitation of the public and leaders trading decisions. The individual concerned, this behavior is rational or irrational, economists do not lead to uniform conclusions. Extreme rationalist such as the University of Chicago professor Gary ? S ? Baker said: "All human beings are rational economic behavior, economists can not explain the reason why is because they can not help but non- rational behavior, careless , stupid behavior, and changes in the value of particular assumptions shows that they can not explain the phenomenon in order to cover up their lack of knowledge, and these assumptions has just exposed the failure of their hide. "Becker's point of view, albeit extreme, but it allows us to I believe as long as we do not diagnose the analysis, individual market participants of the "herd behavior" is how several rational. Such as social psychology control experiment confirmed that: When we look at reality blurred, the public has become sources of information, or provide a public act of information on how to act. In the stock market, due to information asymmetry, the individual can not share information from a limited to make a reasonable decision, that is the rational herd behavior, although with such a rational means of last resort. So I think the stock market's herd behavior often is the beginning of individual rationality, through its amplification and transmission of effect, those who follow the trend of gradually showed a tendency of non-rational, and thus achieve the overall irrationality. When the stock market speculation over when, on the emergence of the "irrational exuberance." This is like a fertile grassland, only a few sheep, and should be said that they will eat very full. But the day attracted a large flock, and this time would be to feed into the desert grasslands of the. At the same time getting enough to eat a sheep, some fell, some movement, but if the only smart sheep, then it should not be followed by a large force, it should be here, so that grass is growing, and so on will become a fat sheep. So, sometimes what we all think that something when the fact may be just the opposite in fact. To overcome the herding stocks If you are desperate to sell shares, you must sell low. - Investment guru Peter Lynch when the market is in a recession, the fact is the investment layout, high harvest waiting for the next best opportunity, however, because most investors there is "herding" mentality, when we no interest, even with the best growth prospects of the investment products are no buyers; and wait until the market fever grows, the investment professionals scrambling to snap up approach, once the market a little adjustment, you will rush to blaze, it seems Most investors can not overcome the investment psychology. How to avoid follow the trend of operating it, our recommendation is: investors combined with their own investment objectives, risk tolerance and other factors, to set profit point and stop point, while controlling their own emotions to face the ups and downs, enhance personal "ring urgently forbearance "capability, so as to successfully achieve investment objectives. Fund investments, like stocks, although not as short-term access, but the appropriate conversion or adjustment of the portfolio is also necessary, because some venture funds can not be avoided, such as the cyclical market risk, even with the star fund must bear market economy and industry Periodic fluctuations of risk. Profit point can be set to remind you investment objective has been achieved, to avoid falling into the weakness of human greed, but missed the final redemption of time, so that profits shrink. Set stop-loss point, you can lock your investment risk, in order to avoid greater losses that may arise. When the fund returns to profit and loss conditions, you should determine whether the profits or the redemption of indemnity. Setting a profit point and reference for a lot of stop-loss point, in general, investors can combine their own risk tolerance, profit expectations, the current age in which family economic conditions and market characteristics where taken into account at the same time on a regular basis check the return on investment, so as to identify the most profitable investment portfolio for their own and stop interval. Here special emphasis on regular inspections of each quarter, the fund investment is suitable for lazy people, but still need to check the fund performance every quarter, ranking changes, changes in investment target for the final redemption or conversion to provide basis for decision making, so as not to miss the best selling point or too back out. Be noted that, when the fund returns a profit for their own set point or stop point, not necessarily immediately recognize profits or lost sale, and you should assess the long-term trend is still bullish on the market, whether the direction of fund operations correct, and even its own profit point or stop if the market conditions at that time, and then decide how to adjust the portfolio. If it is because short-term market adjustment and hit stop, then should not rashly redemption, so that the market rebound soon, you have to sell because of lack of patience in low. If the fund performance in the same type of funds outstanding, while the home market is also bullish on long-term, short- term fluctuations to stop just because the point, this time, if Neng tolerate the continued holding of the risk, perhaps you should re-set the warning conditions, or even take the opportunity to overweight, to dip the purpose of sharing level. Conversely, when the market is a foregone conclusion from the long to short, or the market price-earnings ratio is too high, market risk increases, regardless of whether the profit point, should be redeemed as soon as possible to find the best time. Workplace in the herding In the highly competitive "boom" of the industry, it is prone to "herding" to see a company doing business to make money, and all firms flock to commence this business, until a significant increase in industry supply, production capacity supply and demand imbalance. We are keen to imitate the leader's every move, sometimes the lack of long- term strategic vision. For those of us in terms of workplace where people are often also possible "herding." IT do to make money, we all want to do IT; do management consulting to make money, we all rush to own up; in foreign work, as a mouth English words often pop out the small white-collar, looks very beautiful, so we have to learn English; now become a civil servant is very stable and good income, college graduates have to take a civil service ... ... We are not sheep, we must use their brains to think, to measure themselves. We should look for the real work of their own, rather than the so-called "hot" work, said that "fear of the wrong men and women are afraid to marry the wrong husband" and "hot" job does not belong to us, if the sub-personality and work efforts to the contrary would lead to faster failure. We also pay attention to their chosen industries and companies of the existence of potential crisis, no industry and enterprises can not be the "safe harbor", the risk always exists, must be bold and wise insight. With this sense of crisis in a little later, naturally we must ready response, when the crisis really comes how to do? In "Who Moved My Cheese", the gradual fall in the end the small mouse can not eat cheese, but there is a sense of crisis around to look for new cheese in the little mouse, but before the old eat cheese, they find a new life . Herding the stock market and the Game Analysis Herding is a stock market vision, its stock market stability, efficiency greatly. Study abroad, information asymmetry, reputation and rewards between managers of competition is the main reason for herd behavior, articles on individual investors and institutional investors were among the herd behavior theory, game analysis, from Another point of revealing the causes and impact of this vision. Financial market of the "herd behavior" (Herd behavior) is a special kind of irrational behavior, it is the investors in the information environment of uncertainty, the impact of actions by other investors, making imitation of others, or over- dependent on public opinion, regardless of their behavior because of information involves a number of herd behavior is the main body of investment-related behavior, the market's stability Xiaoshuai You Hentai the impact, and financial crises are also closely related. Therefore, herd behavior caused academia, the investment community and financial regulators attention. Banerjee (1992) that the herd behavior is a kind of "people to do things other people are doing the behavior, even if they own private information that should not be taken to the act," that individual regardless of private information, to take the same action with others. Shiller (1995) the definition of herd behavior is a kind of social interaction between groups of people tend to think and act in a similar way. For example, in a group decision-making, similar to the majority opinion, the individual tends to support the decision-making (even if the decision is incorrect), while ignoring the views of opponents. We believe that our stock market Individual Investors has the following characteristics: A. Individual investors in China stock market shows very significant herd behavior, and herd behavior is stronger than the buyer the seller herd behavior, the time factor herd behavior of investors is not significantly affected herd behavior of investors due to its inherent psychological factors. B. Different market situation, investors have shown a significant herd behavior, that is, whether investors are risk appetite or risk aversion, have shown significant herding. C. Impact of stock returns is an important factor in investor herd behavior. Trading day, rose, investors showed more herding behavior. Investors buyer herd behavior in the trading day when the stock price declines than increases, herd behavior is contrary to the seller. The whole is greater than the buyer the seller Herding Herding. D. Stock size of herd behavior of investors is another important factor. With the flow of capital stock size decreases, the investor herd behavior gradually increased, which is the foreign research with the same conclusion. 1 Cause of herding Herd behavior on the formation of several explanations. Philosophers considered the limited nature of human reason, psychologists believe that is the human herd psychology, sociologists believe that the collective human unconscious, and economists from incomplete information, agent to explain herding behavior of the angle, In general, there are several views: 1.1 As the information generated by the similarity class of herding Froot, Scharfstein and Stein (1992) pointed out that institutional investors have a high degree of homogeneity, they are usually concerned about the same market information, using a similar economic model, information processing, portfolio and hedging strategies. In this case, institutional investors could profit warnings or recommendations of securities analysts and other external information to make the same similar reaction in the trading activity is shown as herd behavior. 1.2 As the information is not completely generated by herding Information can reduce uncertainty, investors have access to accurate, timely and effective information means it is highly profitable, or to avoid major economic losses. But in the real market, the information was required to pay the economic costs of different investors access to information and the ability to vary, institutional investors have the resources, technology, and talent of scale advantages, Geti investors to pay the cost of the information on the far far, compared with institutional investors. A direct consequence of the resulting institutional investors than individual investors more useful information, the individual investors access to effective information and access to investment income at a disadvantage when. Benefits or reduce risks to individual investors, get more real economic signals, will be asking around making the "inside information", or relish in the "unwarranted" groundless, contributed to greater market recovery wind tendency. In fact, even institutional investors, the information is not sufficient. In the incomplete information and uncertain market environment, assuming that each investor have a stock of private information that may be the result of investors own research or through private channels available; the other hand, even if public information about the stock has been fully disclosed, investors still can not determine the quality of information. In this market environment, investors have no direct access other people's private information, but can observe the trading behavior of other people to guess when their private information, it is easy to produce herd behavior. Although institutional investors, individual investors in information relative to the strong, but because of institutional investors to learn more about each other peer-trading case, and concluded with a high information capacity, Instead, they more likely than individual investors flock behavior. 1.3 The agent-based production of herding 1.3.1 Herding on the reputation of agent Scharfstein (1992) and other fund managers and analysts to provide a reputation-based herding theory. As the investment manager's ability is uncertain, on the reputation of the concern arises. Agent 1 received "high income" of the signal for investment. As the agent of two concerned about his reputation, regardless of how the signal will take, and as agents of an investment strategy. If the decision is correct, his fame would be increased; If the error indicates that either both are stupid, or two people are smart, but get the same error signal, it does not harm its reputation. If you take a different decision, a client will see at least one person is stupid. Therefore, the use of an agent 2 will always flock strategy, regardless of his signal and the difference between agents 1. If you have several investment managers make investment decisions, the first copy of each person to choose the investment manager decisions. Ultimately, if the investment is profitable, good signal to dominant. Private information will not be reflected in the final investment decision, because all the investment managers will follow the first investment managers to make decisions. So, this herding is invalid. Moreover, it is fragile, because investment managers behind the investment behavior of investment managers will be because the first bit of information received change. 1.3.2 Agent-based compensation of herding If the investment manager's compensation depends on their relative investment performance of other investment managers, which would distort investment incentives manager and lead manager of the selected investment portfolio is invalid (Brennan, 1993). Maug (1996) investigated such as risk aversion of investors, the returns relative performance as investors increased, the relative performance as investors reduced. Agents and his benchmark investment managers on stock returns has incomplete information. Investors to invest in the first benchmark, the agent observed the choice of investors after the benchmark portfolio choice. Based on previous information is not sufficient herd behavior model of portfolio selection of investment managers will tend to select and benchmark portfolio of similar investors. Moreover, the reward system will also encourage investment managers who mimic the choice of benchmark, because, if his investment performance below the market average investment performance, his pay will be affected. Herding in Game 2 Herding production from individual investors and institutional investors on their personal interests, therefore, to use game theory, we can gain a deeper understanding of the causes of herding. 2.1 between institutional investors and individual investors Game Institutional investors and individual investors the game can actually be seen as a variant of Pigs Game, we assume that institutional investors and individual investors to invest in the stock market, large institutional investors as capital if the investment based on correct information , can be 100 to the benefit of individual investors based on correct information investment interest can only be 5, the two sides can choose to collect and analyze information, the resulting cost of 20, you can simply collect only the other's actions information to follow, so the cost of production of 1, both sides give up the collection of information, resulting in utility is zero. If institutional investors and individual investors have taken to collect information and analyze the behavior, then institutional investors will receive interest (100-20 = 80), individual investors can get (5-20 =- 15), if the agency investors to gather information, individual investors to follow, resulting in the interest of institutional investors (100-20 = 80), individual investors (5-1 = 4), if contrary, the interests of -15,99, respectively, from This produces the following benefits matrix: In this game model, individual investors the same as Pig Game in the pig, he has a strict priority policy does not collect information --- reap the profits, in this case, institutional investors, if not to collect and analyze information, The end result is that everyone's interests are all zero. And institutional investors to collect and analyze information, although let individual investors accounted for cheap, but there are income, so this game iterated strict optimal solution is to collect and analyze information to institutional investors, individual investors of institutional investors behavior and follow. Therefore, individual investors also had a herd behavior of institutional investors. 2.2 The game between the manager Game between the manager acts more complex, but we can use a simple model for approximate analysis of it, assuming there are two competing managers, for the market have generated a manager investment behavior, are There are two options, to follow or not follow, we assume that the success rate of this investment strategy P = 0.5, if successful will be 10 the proceeds, if it fails, the loss of production of 10, they can choose not to follow the investment behavior, use their information in investment decisions, so the success rate of P2 = 0.7, earnings remain unchanged. So that we can calculate the expected benefits of various strategies Following the earnings expectations of I1 = 10 * 0.5 + -10 * 0.5 = 0 Not to follow the income expectations: I2 = 10 * 0.7 + -10 * 0.3 = 4 Last Game was an optimal solution, and this is also an effective solution is not to follow - not to follow, which is actually based on a rather idealized assumption that the manager, the utility = income. The matrix does not reflect the expected benefits described above, the reputation of managers and compensation considerations, and we can conclude that the managers, the decision-making errors with other investors Yi Qi wrong decisions with the individual, its loss is not the same, do not follow the behavior of decision-making errors, in addition to fund financial loss, as well as reputation risk, is considered foolish investment managers, have the possibility of losing their jobs. The professional managers and job opportunities for reputation concerns will undoubtedly influence their decision-making position, it must be a manager to replace the income expectations of the effectiveness of matrix matrix, for managers, because they do not follow the wrong decisions resulting from its loss : book losses + managers about their reputation and return loss = 10 +20 = 30, So we get: Expectations for the effectiveness of follow u1 = 10 * 0.5 + -10 * 0.5 = 0 Do not follow the expected utility for the u2 = 10 * 0.7 + -30 * 0.3 =- 2 In this case, follow - follow a game equilibrium, which proved a direct cause of herding is that in many cases, professional managers will give up their relatively correct information and investment strategies, try to follow an unknown investment strategy to achieve the stability of his career and reputation enhanced. 3 Herd behavior (1) The "herd behavior" that often abandon their private information to follow others, this will lead to market information transmission chain interrupted. However, there are two sides of this situation: first, the "herd behavior" as a certain convergence, thus weakening market fundamentals, the role of future price movements. When investment funds exist "herd behavior", the number of funds will be trading the same stocks at the same time, the sale of pressure will exceed the market can provide liquidity, the stock of excess demand significantly affect the stock price, when the funds were net sellers of shares When will the prices of these stocks under a certain range jump; when the funds net bought shares, then these shares rose sharply in the quarter. Leading to the discontinuity and sharp stock price movements, destruction of the stable operation of the market. Second, if the "herd behavior" is on the same basis as investors responded promptly to information, in this case, the investor "herd behavior" speed up the absorption rate of share price information, led to a more effective. (2) If the "herd behavior" that exceed a certain limit, will induce another important market for the emergence of the phenomenon of 11 over-reaction. In rising markets (such as the bull market), blind chase over the limit value, only bubbles; in declining markets (such as the bear market), blind sell into corrections, can only deepen the crisis. Investor "herd behavior" led to greater price volatility, so that the stability of the stock market decline. (3) all of the "herd behavior" occurs is based on incomplete information. Therefore, once the information market conditions change, such as the arrival of new information, "herd behavior" will collapse. Then from the "herd behavior" caused by the excessive price rise or fall over, it will stop, or even over in the opposite direction will return. This means that "herd behavior" with instability and vulnerability. This is also a direct result of the financial market price instability and vulnerability. Herding and marketing Herd behavior in marketing can be a good technique, also known as herd transaction method. It refers to members of a clever application of marketing sheep mentality of customers, encouraging customers to allay the concern, then rapid decision-making. It applies to all people with a herd mentality. The marketing advantages of skills strategy is clear: 1. Can eliminate the concerns of customers, strengthen customer's sense of security. 2. To customers to generate a sense of urgency that other people have bought, should not we do not buy a. 3. Can drive purchasing behavior of many people, forming a chain reaction. However, this technique also has certain disadvantages: 1. May make a lot of customers who are buying influence at the expense of research on the product itself, leading to blind customers to buy. Such purchases are easily produced in a calm after the psychological regret, that companies and marketers will inevitably result in unnecessary trouble. 2. If you do not have enough marketing experience in the use of this strategy, it is easy to grasp because of improper, introducing a lot of people to purchase or provide other evidence, loss, or disclosure of confidential company information. Therefore, the application of herding in the marketing process must pay attention to: * Must be accurately selected center customers in order to convince other people to follow the purchase. * Without divulging company secrets under the premise of introducing to customers with specific examples, not mere lip service. * Marketing staff should pay attention to professional ethics, facts can not be exaggerated to mislead customers, can not be deceived customers with false information. * Under normal circumstances, only when customers ask about how many people buy, the marketing staff will help things along and to introduce the best results, do not pre-empt the introduction. * If a customer who is concerned about the purchase, and marketing staff should highlight a celebrity or an influential person who has purchased, in order to play authoritative effect of law. Core concepts: the existence of herd of human psychology, behavior often produce blind obedience. Application tips: independent thinking, prudent action; creative and seize the opportunity. Application areas: political, economic, and social life, business.
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