Financial Econometrics Series SWP 2011/04. Fresh Evidence on herding Behaviour from the Chinese Stock Market. P.K. Narayan and X.

Transcription

1 Faculty of Business and Law School of Accounting, Economics and Finance Financial Econometrics Series SWP 2011/04 Fresh Evidence on herding Behaviour from the Chinese Stock Market P.K. Narayan and X. Zheng The working papers are a series of manuscripts in their draft form. Please do not quote without obtaining the author s consent as these works are in their draft form. The views expressed in this paper are those of the author and not necessarily endorsed by the School or IBISWorld Pty Ltd.

2 Paresh Kumar Narayan and Xinwei Zheng School of Accounting, Economics and Finance Faculty of Business and Law Deakin University August 2011 Abstract

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7 1 Christie and Huang (1995) use the cross-sectional standard deviation (CSSD) to measure herding, which is CSSD t = N i=1 R i,t R m,t 2 N 1 where N is the number of firms in the portfolio, R i,t is the observed stock return of industry i at time t, and R m,t is the cross-sectional average stock of N returns in the portfolio at time t. The CSSD t will be sensitive to outliers. For avoiding the problem, Chang et al. (2000) use the cross-sectional absolute deviation to measure herding, which is N CSAD t = 1 R N i,t R m,t i=1 5

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12 2 CSAD t = + γ 1 R m,t + γ 2 R m,t + ε t CSAD t = 1 N N i=1 R i,t R m,t γ 2 10

13 R t = 100 (log P t log P t 1 ) V 2 = ln HP/LP 2 2 Under the Securities Law, Chinese companies wishing to issue or list their A-shares must gain approval from the CSRC. The B shares issued by Chinese companies since 1992 are shares denominated in foreign currency. Between 1992 and 2001, they were exclusively available to overseas investors. In February 2001, China lifted the restrictions that allowed only foreign investors to trade B-shares. Chinese domestic investors can now trade in these shares with foreign currency. In 2002, China launched a program of Qualified Foreign Institutional Investors (QFII) under which overseas investors may invest in and trade Chinese A-shares through qualified institutional investors (Chan et al., 2008). 11

14 V 3 = 0.5 ln HP ln LP 2 2ln2 1 ln CP ln OP 2 V 4 = ln HP ln OP ln HP ln CP + [ln LP ln OP ] ln LP lncp 12

15 γ 2 γ 2 γ 2 13

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18 CSAD UP UP UP UP UP t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t > 0 CSAD DOWN DOWN DOWN DOWN DOWN t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t < 0 UP R m,t (R UP m,t ) 2 CSAD t UP CSAD t DOWN γ 2 16

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24 CSAD t = + θ 1 V 1,t + ε t CSAD t = + θ 2 V 2,t + ε t CSAD t = + θ 3 V 3,t + ε t θ 1 θ 3 22

25 θ 1 θ 3 23

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35 γ 1 γ 2 CSAD t = + γ 1 R m,t + 2 γ 2 R m,t + ε t 33

36 Α γ 1 γ 2 Α γ 1 γ 2 CSAD t = + γ 1 R m,t + 2 γ 2 R m,t + ε t 34

37 γ 1 γ 2 Α γ 1 γ 2 CSAD UP UP UP UP UP t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t > 0 CSAD DOWN DOWN DOWN DOWN DOWN t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t < 0 UP R m,t CSAD t UP (R UP m,t ) 2 35

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39 γ 1 γ 2 γ 1 γ 2 γ 1 γ 2 γ 1 γ 2 CSAD UP UP UP UP UP t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t > 0 CSAD DOWN DOWN DOWN DOWN DOWN t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t < 0 37

40 UP R m,t CSAD t UP (R UP m,t ) 2 38

41 γ 1 γ 2 2 CSAD t = + γ 1 R m,t + γ 2 R m,t + ε t 39

42 γ 1 γ 2 γ 1 γ 2 2 CSAD t = + γ 1 R m,t + γ 2 R m,t + ε t 40

43 γ 1 γ 2 γ 1 γ 2 CSAD UP UP UP UP UP t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t > 0 CSAD DOWN DOWN DOWN DOWN DOWN t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t < 0 UP R m,t CSAD t UP (R UP m,t ) 2 41

44 γ 1 γ 2 γ 1 γ 2 γ 1 γ 2 γ 1 γ 2 42

45 CSAD UP UP UP UP UP t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t > 0 CSAD DOWN DOWN DOWN DOWN DOWN t = + γ 1 R m,t + γ 2 R 2 m,t + ε t, if R m,t < 0 UP R m,t CSAD t UP (R UP m,t ) 2 43

46 θ 1 R 2 θ 2 R 2 θ 3 R 2 CSAD t = + θ 1 V 1,t + ε t CSAD t = + θ 2 V 2,t + ε t CSAD t = + θ 3 V 3,t + ε t, V 1 = ln HP/LP 2, V 2 = 0.5 ln HP ln LP 2 2ln2 1 ln CP ln OP 2, V 3 = ln HP ln OP ln HP ln CP + ln LP ln OP ln LP ln CP 44

47 θ 1 θ 2 θ 3 R 2 θ 1 θ 2 θ 3 R 2 45

48 CSAD t = + θ 1 V 1,t + ε t CSAD t = + θ 2 V 2,t + ε t CSAD t = + θ 3 V 3,t + ε t, V 1 = ln HP/LP 2, V 2 = 0.5 ln HP ln LP 2 2ln2 1 ln CP ln OP 2, V 3 = ln HP ln OP ln HP ln CP + ln LP ln OP ln LP ln CP 46

49 θ 1 θ 2 θ 3 R 2 CSAD t = + θ 1 V 1,t + ε t CSAD t = + θ 2 V 2,t + ε t CSAD t = + θ 3 V 3,t + ε t, V 1 = ln HP/LP 2, V 2 = 0.5 ln HP ln LP 2 2ln2 1 ln CP ln OP 2, V 3 = ln HP ln OP ln HP ln CP + ln LP ln OP ln LP ln CP θ 1 47

50 θ 2 θ 3 R 2 θ 1 θ 2 θ 3 R 2 CSAD t = + θ 1 V 1,t + ε t CSAD t = + θ 2 V 2,t + ε t CSAD t = + θ 3 V 3,t + ε t, V 1 = ln HP/LP 2, V 2 = 0.5 ln HP ln LP 2 2ln2 1 ln CP ln OP 2, V 3 = ln HP ln OP ln HP ln CP + ln LP ln OP ln LP ln CP 48