Herding Behavior of Active Traders in the Chinese Stock Market

摘要

China is becoming a significant financial force and hence the study of her financial market and comparison with the US as one of the key investors in China’s financial market is of great interest. This paper uses intraday data to investigate the herding behavior of active traders in the Chinese equity market- the largest emerging country. It is found that herding behavior exists but is not severe in comparison with findings from the stock market in the US and other countries. The VAR analysis and Granger test which is used for the first time to analyze herding activities, shows that market return is the determinant of herding activities, rather than the other way around. There is certain evidence demonstrating that herding can accelerate price discovery and reduce excess return, but buying herding seems to have adverse effects on market efficiency.