Analysis on the Impact of the Federal Reserves Interest Rate Cut Policy on the Herd Behavior in the A-share Market

The monetary policies of the Federal Reserve have a bigger effect on the financial markets of many countries because the decision to lower interest rates often starts a chain reaction. This is particularly true when the Fed decides to decrease interest rates, as this typically sets off a chain reaction. On September 18, 2024, the Federal Reserve announced an interest rate cut, immediately drawing widespread attention. Therefore, the paper aims to explore the impact mechanism of the Feds interest rate cut policy on the herd behavior in the A-share market, and analyze how it affects the behavior and psychological drivers of investors therein. It adopts the theoretical framework of behavioral finance to explore the changes in the decision-making patterns and herd behavior of investors in the A-share market after the announcement of the interest rate cut by analyzing relevant literature and market transaction data. The results indicate that the Feds interest rate cut policy prompts investors to exhibit typical herd behavior by influencing market sentiment and expectations, thus exacerbating the herd effect in the A-share market. This behavioral pattern increases market volatility in the short term, leading to irrational fluctuations in asset prices, which in turn increases market risk. In addition, the herd behavior may affect the effective discovery of market prices, resource allocation and exacerbate the instability of financial markets.