Herding behavior levels in the Chinese stock market: A temporal comparison for the past ten years

Abstract

Herding behavior describes that investors follow others’ investing patterns or external information rather than use their own rationalities. It is a crucial part of behavioral finance and could lead to equity market breakdown or even serious financial crises. This study aims to compare herding behavior levels in the Chinese stock market from 2007 to 2017. It employs the cross-sectional standard deviation (CSSD) and cross- sectional absolute deviation (CSAD) to quantify the herding behavior degrees and construct timeframes including pre-crisis, during crisis and post-crisis to draw a temporal comparison for past ten years. Empirical results suggest that generally, herding is more pronounced after the financial crisis than that before or during the financial crisis and investing patterns are increasingly diversified. The study also investigates the correlation between the market return and herding behavior levels and reveals the herding extinctions of particular industries.