Abstract
This paper investigates herding behavior between Chinese A-share and HK stock market based on Shanghai-Hong Kong Stock Connect. This research innovatively details the difference in herding behavior between two markets bidirectionally. By applying CCK model and quantile regression, we examine herding behavior between Chinese and HK stock market in asymmetric situations from the perspective of net capital flow of Shanghai-Hong Kong Stock Connect. Our findings suggest that the impact of HK share on A share’s herding behavior increases after Shanghai-Hong Kong Stock Connect starts trading. To some extent, the direction of net capital flow of Shanghai-Hong Kong Stock Connect acts as a powerful indicator for investors, which skillfully deflects Chinese stock market. Besides, the way in which HK’s stock market influences that of Chinese mainland has undergone a transformation.
Highlights
Classical Economic theory assumes rational people and complete information
Cross-Market Herd Behavior between A- and H-Share Markets Considering the dependent variable (CSAD) in A-shares from 2006/01/05 to 2016/02/27 (Table 2), the coefficients of γ 3 ( γ 3 = −0.632 before launch of Stock Connect, γ 3 = −5.292 after launch of Stock Connect and γ 3 = −2.042 during whole sample period) and γ 5 ( γ 5 = −2.895 before launch of Stock Connect, γ 5 = −2.217 after launch of Stock Connect and γ 5 = −1.605 during whole sample period) are significantly negative. It shows that there exists herd behavior before and after the launch of the Shanghai-Hong Kong Stock Connect
The results show that there is a herd behavior before and after the launch of the Shanghai-Hong Kong Stock Connect, and there is a linkage between the two markets in return dispersion
Summary
Classical Economic theory assumes rational people and complete information. There is asymmetry information and information incompleteness in real financial market. Human cognitive bias and bounded rationality give rise to various economic and financial anomalies. Understanding investors’ decision-making behavior becomes a research concern. As the globalization of capital market, rising uncertainty tends to lead to increased herding behavior and sharp fluctuations of asset prices.
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