The Herding Behavior in Chinese Stock Markets: Evidence from A-Share Markets during COVID-19

Abstract

This paper studies the presence of herding behavior in Chinese A-share markets using both individual firm and industry-level data before and after the pandemic. Using a sample of all firms listed over the period 10/08/2018 to 09/30/2021, I distinguish between the Shanghai and Shenzhen stock exchanges and find that herding behavior does not exist in overall Chinese A-share markets. However, comparing return dispersions for rising and declining market in different industries, I observe that investors exhibit different levels of herding behavior. I find evidence that COVID-19 increases herding behavior on the Shanghai and Shenzhen stock markets. The results report that herding behavior manifests during upward market movement. The results are important for investors and regulators to increase their understanding of stock markets. Moreover, studying herding behavior can be useful in controlling for financial risk.