Abstract

This study explores herding behavior and investors’ asymmetric reactions to good news and bad news in China equity market. Turnover effect on herding is tested. Data covers from Jan 2004 to June 2009, including current financial panic period.

Even though there do not exist herding behavior in China equity market, we demonstrate the existence of asymmetric reaction that investors’ tendency toward herding is significantly higher during market downstream. This study partly supports the turnover effect that low turnover stocks significantly converge to market return than high turnover stocks.

Keywords: China equity market, herd, turnover rate, asymmetric reaction

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