Chinese stock market volatility and herding behavior asymmetry during the COVID-19 pandemic

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The primary purpose of this paper is to explore the herding behavior in the Chinese stock market during COVID-19 and the asymmetry of that behavior using the daily returns of A- and B-shares from 2 January 2019, to 15 October 2021. The study uses the cross-sectional absolute deviation model to analyze stock market herding behavior by non-linear polynomial regression. We show that the herding behavior in the Chinese stock market is more prominent during the COVID-19 pandemic. Herding behavior has a negative effect on stock market volatility. Moreover, such a suppressing effect weakened during the COVID-19 pandemic. There is an asymmetry in herding behavior during the bull and bear markets, which is helpful in our investigation of the market’s volatility during the COVID-19 pandemic. The pronounced asymmetry in the herding behavior of the Chinese stock market during COVID-19 is assessed using the E-GARCH (p, q) model. The empirical results of the present study contribute to the literature about herding asymmetry by showing the herding behavior during the health crisis and bull and bear markets. It also helps reconcile the debate about the impact of herding on market stability and provides insightful guidance for investors wishing to invest in the Chinese stock market.

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Cogent Economics and Finance



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