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Herding and capitalization size in the Chinese stock market: a micro-foundation evidence

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Abstract

It is inconclusive for the relationship between herding and capitalization size of stocks in the developed markets while there is a research gap to address this issue for the emerging markets. The existing literature often uses aggregate measures to investigate herding and cannot differentiate autonomous opinion switching from real herding. This paper applies the simulated method of moment estimator proposed by Chen and Lux (Comput Econ 52:711–744, 2018) to investigate the herding in the Chinese stock markets from the perspective of individual investor’s behavior. It is found that both of the large and small capitalization stocks exhibit herding, especially during the 2015 crash. Before the crash, the large stocks have stronger herding than the small stocks. In contrast, during and after the crash, the situation is reversed with the small stocks having stronger herding.

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Notes

  1. \(N_\mathrm{c}=100\), \(N_\mathrm{f}=100\), \(V_\mathrm{c}=1\), and \(V_\mathrm{f}=1\).

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Funding

This project receives funding support from The Youth Foundation of the Humanities and Social Sciences Research of the Ministry of Education of China (17YJC790016), China Postdoctoral Science Foundation (2018M633040) and the Fundamental Research Funds for the Central Universities (2018MSXM06 and XYZD201913).

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Authors and Affiliations

  1. School of Economics and Commerce, South China University of Technology, Guangzhou, China

    Zhenxi Chen & Jing Ru

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  1. Zhenxi Chen
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  2. Jing Ru
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Correspondence to Jing Ru.

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Zhenxi Chen and Jing Ru declare that they have no conflict of interest.

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This article does not contain any studies with human participants or animals performed by any of the authors.

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The authors would like to acknowledge the generous support including computing resources from Thomas Lux, University of Kiel. We also thank the editor and the anonymous reviewer for the stimulating comments.

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Chen, Z., Ru, J. Herding and capitalization size in the Chinese stock market: a micro-foundation evidence. Empir Econ 60, 1895–1911 (2021). https://doi.org/10.1007/s00181-019-01816-z

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