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Regime-switching herd behavior: Novel evidence from the Chinese A-share market

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  • Fu, Jingxue
  • Wu, Lan

Abstract

We examine time-variations of herd behavior by proposing a Markov regime-switching model. Our model can not only infer the hidden market state which drives the time-varying herd behavior, but can also capture the empirical characteristics. We conduct a comprehensive empirical analysis of the Chinese A-share market. We find evidence that herding is prominent in volatile regimes, while adverse herding is prevalent during tranquil regimes. Moreover, we conduct a simulation example to explain why previous studies on herding presented conflicting results. Finally, we check for herding effects at factor and industry levels, and employ multiple testing to integrate all the results.

Suggested Citation

  • Fu, Jingxue & Wu, Lan, 2021. "Regime-switching herd behavior: Novel evidence from the Chinese A-share market," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612318301090
    DOI: 10.1016/j.frl.2020.101652
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    3. Shifen Zhou & Xiaojun Liu, 2022. "Internet postings and investor herd behavior: evidence from China’s open-end fund market," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-11, December.
    4. Shi, Yanlin, 2022. "A closed-form estimator for the Markov switching in mean model," Finance Research Letters, Elsevier, vol. 44(C).
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    6. Yang, Wan-Ru & Chuang, Ming-Che, 2023. "Do investors herd in a volatile market? Evidence of dynamic herding in Taiwan, China, and US stock markets," Finance Research Letters, Elsevier, vol. 52(C).
    7. Cheng, Tingting & Xing, Shuo & Yao, Wenying, 2022. "An examination of herding behaviour of the Chinese mutual funds: A time-varying perspective," Pacific-Basin Finance Journal, Elsevier, vol. 74(C).

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