Sectoral Herding Contagion on Eve of New Year

Abstract

The purpose of this study is to investigate herding contagion on the eve of the new year (2015-2019) last three years data excluding due to Covid 19 effect on stock markets. This research work focuses on the cross-country behavioural linkages of investors between US and Chinese stock markets. This study employs a return dispersion model to identify the consensus among the participants of the market (Chang et al., 2000). The first aim of this study is to examine herding contagion by Cross Sectional Absolute Deviation (CSAD) between domestic and foreign countries. The findings of this study depict that herding contagion appeared during the new year, however, the intensity of herding contagion negligible during the new year within the aggregate and sectoral data sets. This paper highlights sectors for investors to get the maximum advantage of portfolio diversification. Therefore, stockholders require to alter their portfolios according to the situation in the market to diversify risk. The study suggests that investors and asset managers should analyse the sectoral performance of stock markets during such situations before making a portfolio.