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

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  • Zhenxi Chen

    (South China University of Technology)

  • Jing Ru

    (South China University of Technology)

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.

Suggested Citation

  • Zhenxi Chen & Jing Ru, 2021. "Herding and capitalization size in the Chinese stock market: a micro-foundation evidence," Empirical Economics, Springer, vol. 60(4), pages 1895-1911, April.
    • Handle: RePEc:spr:empeco:v:60:y:2021:i:4:d:10.1007_s00181-019-01816-z
    DOI: 10.1007/s00181-019-01816-z
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    Cited by:

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    3. Lai, Chong, 2022. "Investment dynamics of fund managers under evolutionary games," International Review of Financial Analysis, Elsevier, vol. 82(C).

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