Herding behaviour in asymmetric and extreme situations: the case of China

Abstract

This paper will investigate herding behaviour in asymmetric (bearish versus bullish context) and extreme market conditions (characterized by significant changes in stock prices) through daily data from the Shanghai and Shenzhen stock exchange markets. Results show that a bullish context generates a herding behaviour for B-shares while a bearish situation rather favours a crowd movement for A-shares. Given that sophisticated investors are known to trade on B-shares, these results suggest that this category of actors is more likely to follow the trend when they face with a bullish context while they can reduce their herding behaviour in a bearish context by using technical/analytical tools allowing them not to follow the crowd behaviour.