Herding behaviour of Chinese A- and B-share markets

Abstract

Purpose: The purpose of this paper is to examine the evidence of herding phenomenon, spill-over effects related to herding and whether herding is driven by fundamentals or non-fundamentals for various sub-periods and sub-samples. Design/methodology/approach: The cross-sectional absolute deviation model is applied to China’s A- and B-share markets in combination with fundamental information. Findings: Herding is prevalent on both A- and B-share markets. In detail, investors on A-share market herd for small and growth stock portfolios irrespective of market states while they only herd for large or value stocks in down market, therefore leading the whole herding behaviour to be pronounced in down market. Comparatively, on B-share market, herding is robust for various investment styles (small or large, value or growth) or market situations. Additionally, spill-over effects related to herding do not exist no matter from A-shares to B-shares or from B-shares to A-shares. Moreover, investors on B-share markets tend to herd as the response to non-fundamental information more frequently during financial crisis. Originality/value: Investors on A- and B-share markets tend to herd as the response to non-fundamental information more frequently during financial crisis. Analysing the herding behaviours could be helpful in controlling the financial risk.