The Chinese Economy

ISSN: 1097-1475 (Print) 1558-0954 (Online) Journal homepage: https://www.tandfonline.com/loi/mces20

Institutional Industry Herding in China

Lei Zhu, Huimin Li & Dazhi Zheng

To cite this article: Lei Zhu, Huimin Li & Dazhi Zheng (2020): Institutional Industry Herding in
China, The Chinese Economy, DOI: 10.1080/10971475.2020.1720963

To link to this article: https://doi.org/10.1080/10971475.2020.1720963

Published online: 12 Feb 2020.

Submit your article to this journal

Article views: 2

View related articles

View Crossmark data

Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=mces20
THE CHINESE ECONOMY
https://doi.org/10.1080/10971475.2020.1720963

Institutional Industry Herding in China

Lei Zhu, Huimin Li, and Dazhi Zheng
Economics and Finance Department, West Chester University, West Chester, USA

ABSTRACT KEYWORDS
This paper examines the effect of institutional herding on future stock China A-share market,
returns in China A-share market at both the market and industry level industry herding,
from 2003 to 2012. Using a unique institutional holding database, we test institutional investors, stock
excess returns
the herding effect at different time horizons. The results suggest that
institutional herding has a significantly positive effect on future excess
returns for A shares in the short, medium and long periods of time. In
China A-share market, institutional herding is more significant on buy side
than sell side due to short sell restrictions. At the industry level, manufac-
turing and construction sectors experience institutional herding effect
at all time horizon. Financial industry is found to present significant
institutional herding effect only in the long term. The institutional herding
has a positive and significant impact on the medium-term and long-term
excess stock returns in the rest of ten sectors.

Introduction
Since Chinese stock market was reestablished in the 1990s, it has become one of the most rapidly
growing markets and played an important role in global portfolio management.1 It is well known
that Chinese stock market consists of mostly individual retail investors that are not well-educated,
which makes the market more susceptible to speculation and herding (Li, 2017; Mei, Scheinkman,
& Xiong, 2009; Xiong & Yu, 2011). However, since early 2000s, China Securities Regulatory
Commission (CSRC, similar to SEC in the U.S.) has promoted the growth of institutional investors
by instituting the Securities Investment Fund Law and introducing Qualified Foreign Institutional
Investors program. The purpose of promoting institutional investors is to provide more stability to
the retail-investor dominated market. Although the full effect of more institutional trading is yet to
be seen, it has attracted growing interest to study institutional investors in China during the last
10 years. Some research has found stabilizing effect from introducing foreign institutional investors
(Han, Zheng, Li, & Yin, 2015; Schuppli & Bohl, 2010), in contrast to the destabilizing effect usually
found for herding in the literature (Bikhchandani, Hirshleifer, & Welch, 1992; Lakonishok, Shleifer,
& Vishny, 1992; Venezia, Nashikkar, & Shapira, 2011).
This paper examines the impact of institutional herding on future stock returns at industry
level in China’s A-share market. Herding happens when a group of investors trade in the same
direction over a period of time (Nofsinger & Sias, 1999). As institutional investors have become
more important in China’s stock market,2 it is imperative to understand how herding behavior of
these institutional investors affects stock returns. Institutional investors usually follow each other
into and out of the same industries and such herding impacts stock prices (Choi & Sias, 2009).
Furthermore, institutional herding is found to be more prevalent at industry level in China

CONTACT Lei Zhu lzhu@wcupa.edu Economics and Finance Department, West Chester University, West Chester, PA
19383, USA.
ß 2020 Taylor & Francis Group, LLC
2 L. ZHU ET AL.

(Yao, Ma, & He, 2014; Zheng, Li, & Chiang, 2017), and many analysts or professional managers
do make industry recommendations as well as individual stock recommendations in the real
world. Therefore, our main research questions in this paper are: Does herding from institutional
investors affect the future excess returns in different time horizons (short term, medium term
and long term)? And which industries institutional investors are more likely to herd on?
Theories suggest that investors may herd due to information asymmetry (Banerjee, 1992;
Bikhchandani et al., 1992), concern over reputation loss (Graham, 1999), fear of poor perform-
ance and less compensation (Maug & Naik, 1996), pursuit of stocks, portfolios or industries that
have become popular or fads (Barberis & Shleifer, 2003; Choi & Sias, 2009) and other causes.3
While individual investors tend to herd due to information asymmetry or fads, institutional
investors are likely to herd due to all the above reasons.4 In general, individual/amateur investors
have more tendency to herd than professional/institutional investors and the professionals are
less sensitive to firm’s systematic risk and size factors when herding (Venezia et al., 2011). It gives
us more reasons to investigate institutional industry herding rather than herding at individual
firm level or portfolios based on size or risk factors. In emerging markets like China, it is likely
that institutional investors herd due to information cascades or reputational concerns due to
opaqueness of the financial system (Bikhchandani & Sharma, 2001).
Herding can also be categorized as intentional or unintentional (or spurious). Unintentional
herding occurs when investors react identically to public information possibly due to their homo-
geneity (similarity in education background, investment experience, etc.) or common regulatory
framework they are subject to (for example, short-selling constraint) (Teh & De Bondt, 1997;
Voronkova & Bohl, 2005). On the other hand, herding could be intentional when investors follow
others decision to trade stocks instead of processing the financial information by themselves, due
to reasons such as information cascade and reputation or compensation concerns. Gavriilidis,
Kallinterakis, and Ferreira (2013) find that institutional herding is intentional for most sectors in
the Spanish market. In China’s case, institutional investors are also more likely to herd intention-
ally even though they may still herd unintentionally due to common regulatory environment.5
Literature on institutional herding has been more extensive compared to that on individual
investor herding, due to more easily available data on institutional investor holding information
of individual stocks. Some studies focus on a specific type of institutions, such as mutual funds.
While Lakonishok et al. (1992) find little evidence of herding using tax-exempt mutual funds
data, others do find some evidence of herding in stocks with certain characteristics (size, analyst
rating changes) from mutual fund data in the U.S. market (Brown, Wei, & Wermers, 2014;
Wermers, 1999) as well as in foreign markets (e.g., Korea in Kim & Wei, 2002; Japan in Kim &
Nofsinger, 2005; Poland in Voronkova & Bohl, 2005; Germany in Walter & Moritz Weber, 2006;
Taiwan in Chen, Wang, & Lin, 2008). Other studies use quarterly institutional holding data for
individual stocks to examine evidence of herding by institutional investors and the impact on
returns. Nofsinger and Sias (1999) find contemporaneous positive correlation between changes
in institutional ownership and daily returns. Sias (2004), on the other hand, suggests that
institutional investors’ demand for a security is more related to their lag demand than to lag
returns, therefore supporting information cascading hypothesis rather than momentum trading
hypothesis. Furthermore, Dasgupta, Prat, and Verardo (2011) investigate institutional herding’s
long-term impact on the stock returns and suggests persistent institutional trading is negatively
associated with stock returns.
Institutional herding might have different effects on stock returns. When institutional investors
trade in the same direction based on carefully analyzed public information and stock fundamen-
tals, it could push prices toward stocks’ intrinsic value. However, if institutional investors trade in
the same direction because of peer pressure, reputation, or characteristic preferences, etc., it could
push prices away from stocks’ intrinsic value. Wermers (1999) and Sias (2004) find that buy and
sell imbalance of institutional trades are positively associated with the stock returns in the near
 THE CHINESE ECONOMY 3

future, so they argue that institutional herding tends to reduce stock mispricing and therefore
aids price discovery. On the other hand, the empirical results from Dasgupta et al. (2011),
Wermers (1999), and Sias (2004), among the others, also show long term stock return reversals
after herding has been detected. Since long term return reversals tend to be signals of price cor-
rections, their findings could also support the argument that institutional herding destabilizes
stock prices, which pushes them away from intrinsic values. As the evidence from literature is
not conclusive, it will be interesting to investigate how institutional herding affect stock returns
in different time horizons.
There have been a few studies on institutional herding in China in recent years. Based on daily
data, Frijns, Lai, and Tourani-Rad (2014) investigate the institutional herding in China and find
strong evidence of price pressure, informed trading, and momentum trading of institutional investors.
Li, Rhee, and Wang (2017) examine different herding behavior between individual and institutional
investors in China and find that better-informed institutional investors are more likely to herd than
individual investors and trade more selectively. Zheng, Li, and Zhu (2015) study the institutional
investors herding in both China’s A-share and B-share markets and find evidence that future excess
stock returns are positively correlated with the herding measure. The previous herding research in
China’s stock market has been based on either B-share market or the whole market including both A
shares and B shares. They ignore the fact that B-share market has been dominated by foreign institu-
tional investors, who are regarded as more rational investors (see Tan, Chiang, Mason, & Nelling,
2008). In this paper, we focus on China’s A-share market only, separating the herding impact of
domestic institutional investors from that of foreign institutional investors.
In the literature, studies on institutional herding at the industry level are also scarce. Choi and
Sias (2009) argue that institutions more often focus on information based on fundamental classifi-
cations such as industries rather than on size and value factors. They follow Sias (2004) using
cross-sectional correlation between institutional investors’ industry demand this quarter and last
quarter and find that institutional investors follow each other into and out of the same industries.
Their results demonstrate that institutions herd to industry fads and also support the hypothesis
that industry herding is primarily due to correlated signals. Using quarterly portfolio holdings of
Spanish funds and similar measures in Sias (2004), Gavriilidis et al. (2013) find that institutional
herding is intentional for most sectors in Spain. Other studies, such as GeR bka and Wohar (2013),
Lee, Chen, and Hsieh (2013) and Yao et al. (2014), adopt cross-sectional dispersion measures to
study industry herding. However, the cross-sectional dispersion measures are based on trading
prices in the market and do not distinguish between institutional investors and individual invest-
ors. This paper uses institutional investor holding data to investigate impact of herding behavior
more directly as compared to China’s industry studies such as Lee et al. (2013) and Yao
et al. (2014).
To our knowledge, this paper is among the first attempts to examine institutional herding in
China at the industry level using institutional holding data. Instead of using cross-sectional dis-
persion measure or cross-sectional correlation of investors’ demand, we follow Kremer and Nautz
(2013)’s herding measure to focus on examining the impact of institutional herding on the future
stock returns in China’s A-share market. We try to explore if there is any significant difference of
herding on the stock returns among industries.
The existing literature have limitations in that they often focus on one type of institutional
investors, such as mutual fund or foreign institutional investors (Schuppli & Bohl, 2010). Due to
data availability, stock trading information is quite limited. We use a unique database that
includes comprehensive institutional investors holding data. Investor holding information at firm
level is collected for all major types of institutional investors in Chinese stock market.6
With the unique dataset, our study sheds more lights on the institutional herding in China’s
A-share market. The results can be used to gain better understanding of institutional herding in
other emerging markets.
4 L. ZHU ET AL.

In addition, following Wermers (1999), Kremer and Nautz (2013), and Zheng et al. (2015), we
test herding effects on future stock returns at different time horizons: short, medium and long
term time periods. The information cascade theory suggests that investors could follow institu-
tional investors rapidly after they observe the trading actions. Therefore, we examine the stock
price reactions in one day, one quarter and one year after the institutional holding information is
released at the end of each quarter. Furthermore, we divide our sample to buy herds and sell
herds and test for their asymmetric effects on stock returns.
The empirical results show that institutional herding has a significantly positive effect on
future excess stock returns for all short, medium and long periods of time in China. Due to the
short sell restrictions from Chinese government, institutional herding is more significant on buy
side than on sell side. The industry level analysis reveals that institutional herding is statistically
significant in manufacturing and construction sectors at all time horizons, but only has a positive
impact on long-term excess stock returns in financial industry. The rest of sectors show
significantly positive institutional herding in the medium and long term. The herding effect
is the strongest in the long term for all industries.
The paper is organized as follows. Section 2 provides the background information of Chinese
stock market and institutional investors. The herding measure and empirical models are
presented in Section 3. Section 4 discusses the data. Section 5 reports the empirical results and
Section 6 concludes.

Chinese stock market and institutional investors

China formally reestablished two fully functioning national stock exchanges in late 1990s, one in
Shanghai and one in Shenzhen. The number of companies listed in both stock exchanges has
been growing rapidly since then. As of 2017, there were 3485 companies listed in both stock
exchanges. The total market capitalization reached to $4.9 trillion in Shanghai Stock exchange7
and $3.5 trillion in Shenzhen stock exchange.8 Chinese market weights 33% in MSCI emerging
market index, one of the most tracked emerging market indexes as of March 2019.9 There are
two types of stocks being issued in Chinese stock market: A shares and B shares. A-shares are
denominated in RMB and B-shares are denominated in foreign currencies. Our study focuses on
A-share markets, which are much larger in terms of market capitalization and they are more
liquid relative to B-share markets. Mei et al. (2009) suggest that the A-share market has more
speculative component than the B-share market, therefore displaying a price premium over the
latter. Chiang, Li, and Tan (2010) find evidence of herding in A-share market but no evidence of
herding in B-share market. This provides a good case for testing herding effects in A-share mar-
ket. Over the past years, the institutional ownership of tradable shares increased dramatically.
The number of institutional investor accounts more than doubled from 2000 to 2012.10 China’s
institutional investors include mutual funds, social security funds, enterprise pension funds,
insurance companies, qualified foreign institutional investors (QFII), and other institutions. More
than 70% of the institutional ownership is mutual funds, which carries the largest weight in
the stock market (Yang, Chi, & Young, 2014).

Methodology
According to Lakonishok et al. (1992), herding happens when institutional investors tend to trade
on one side (buy or sell) of a particular stock at the same time, compared to when they trade
independently. We follow the theoretical framework of Lakonishok et al. (1992) and empirical
measure by Kremer and Nautz (2013) to construct the herding measure.
For each quarter, we obtain the number of institutional investors that are buyers (bi,t) and
sellers (si,t) of a particular stock. The buyer ratio for each stock in every quarter is calculate
 THE CHINESE ECONOMY 5

as bi, t ¼ bi, bt þs
i, t
i, t
, where bi,tþ si,t represents all institutional trades in our sample. The herding
measure is represented by the following equation11:
HMi, t ¼ ðbi, t  bt Þ  ðbi, t1  bt1 Þ (1)
where bt is the market average buyer ratio. The buyer ratio of the particular stock bi, t is excluded
in bt to eliminate the market level trading trend. bi, t1 and bt1 are the lag terms (previous quar-
ter) of the individual buyer ratio and market average buyer ratio. To remove time series buy or
sell patterns for a particular stock, we subtract ðbi, t1  bt1 Þ in the equation. If there is no herd-
ing activity among institutional investors, HMi, t ¼ 0: A positive HMi, t indicates that institutional
investors herd on the buy side and a negative HMi, t suggests a sell herd.12 The larger absolute
value of HMi, t , the stronger herd activities among institutional investors in trading the stock.
We apply event study to examine the effect of institutional herding on stock returns in
China’s A-share market. The future excess stock return depends on the herding measure, the
market risk premium and a group of control variables. The estimation equation is as follows.
Ri, tþ1  rf , tþ1 ¼ C þ A  HMi, t þ B  ðRm, t  rf , t Þ þ C  Zt þ ei, t (2)
where time t is the last trading day of each quarter when the investor holding data is publicly
available. Ri, tþ1 is the return for stock i over time t to t þ 1 and rf , tþ1 is the risk-free rate for the
same time period. To investigate the effects of institutional herding on stock returns at the differ-
ent time horizon, we test the excess stock returns for next day, next quarter, and next year. HMi, t
is the herding measure that is calculate from Equation (1). ðRm, t  rf , t Þ is the market risk
premium at time t. Zt is a vector of control variables that have been widely used in the previous
studies to predict variations in excess stock returns. These variables are added to capture the
price factors, such as share turnover, stock price volatility, market liquidity risk and the Fama-
French-Carhart risk factors (size, book-to-market ratio, momentum).

Data and descriptive statistics

The data sample consists of all A-share stocks listed on both the Shanghai Stock Exchange
(SHSE) and the Shenzhen Stock Exchange (SZSE) in China.13 China Securities Regulatory
Commission (CSRC) requires all public listed companies to release shareholding changes and
major investors’ information each quarter. In our study, the institutional shareholding informa-
tion of A-share stocks on the two exchanges is hand collected from CSRC’s website and provided
by GTA Information Technology.14 We remove the small institutional investors that hold less
than 0.01% of total outstanding shares for at least one stock in each quarter, because the data are
either unavailable or unreliable. The sample covers the period from December, 2003 to
December, 2012.
The stock market data and company fundamentals are obtained from the WIND database.15
The variables include each stock’s market capitalization, outstanding shares, trading volume, share
turnover, book-to-market ratio, daily opening and closing price, etc. The stock (market) return is
defined as ((log(pt)  log(pt1)) 100, where pt denotes the daily closing price (index). Following
Fama and French (1993), Carhart (1997), and Amihud (2002), we also calculate the monthly
Fama–French factors (market risk premium, size risk factor and value risk factor), the momen-
tum variable, and the illiquidity variable in China’s stock market by using firm-level daily
stock returns. The Fama–French three factors, momentum factor, and illiquidity factor are used
to control market level pricing risks.
Table 1 presents the data of institutional investors that hold more than 0.01% of total shares
outstanding for at least one stock in each quarter. That means, if an institutional investor holds
more than 0.01% of total shares outstanding for more than one stock in a certain quarter, it is
6 L. ZHU ET AL.

Table 1. Institutional investors in China’s stock market.

Social Enterprise Percentage of
security pension Insurance Other institutional
Year Mutual funds funds funds companies QFII institutions Total holdinga
2003 404 20 168 0 96 136 824
2004 10012 604 5276 4 240 4776 20912
2005 10460 908 4772 340 792 4296 21568
2006 10256 992 6780 1052 1480 6152 26712 30%
2007 14936 396 12768 868 920 11688 41576 41%
2008 14616 748 15716 1020 624 14576 47300 45%
2009 18020 856 15024 1212 908 13600 49620 61%
2010 22808 1200 18636 2796 976 15372 61788 64%
2011 24360 1116 22724 3620 696 18648 71164 66%
2012 24796 1732 24828 3120 820 20520 75816 66%
This table shows the data of institutional investors holding in China’s stock market by year from December 2003 to December
2012. Because the data for smaller institutional investors are generally less reliable and sometimes unavailable, we only
include the institutional investors that hold more than 0.01% of total shares outstanding for at least one stock in each quar-
ter. Since 2003 only has one month’s data, the numbers are dramatically smaller compared to other years. QFII refers to
Qualified Foreign Institutional Investors. The percentage of institutional holding measures the percentage of market value
hold by institutional investors to the total market value of all public traded stocks. The data source is GTA (see footnote 12).
a
Data are collected from research reports of Shenwan Hongyuan Securities, which is one of the largest public security analysis
company in China. The institution holding data are only available from 2006.

only counted once. Among all institutional investors, mutual funds and enterprise pension funds
are the two largest participants. Social Security Funds, Insurance companies and QFIIs are still
outnumbered significantly in the market. Also shown in Table 1, the institutional investor hold-
ings have grown rapidly during our sample period. Insurance companies and enterprise pension
funds seem to have the fastest growth over the nine-year period. The percentage of institutional
holding16 increased rapidly from 30% in 2006 to 66% in 2012, and it confirms that institutional
investors had played more and more important roles in China’s stock market.
The overall industry descriptive statistics are presented in Table 2. The industry classification
is defined by the CSRC and has been widely used in China. According to the CSRC industry clas-
sification, we include 13 industries: agriculture, mining, manufacturing, utilities, construction,
transportation, information technology, wholesales and retails, financial, real estate, service, media
and entertainment, and comprehensive sector. Manufacturing is the largest industry with 1,522
stocks and its market capitalization is close to 39% of the total market. Information technology
and wholesale/retail sectors follow with second and third largest number of stocks, but the market
value of the two sectors is only about 9% of the total market capitalization. On the other hand,
financial and mining industries are ranked the second and third largest in terms of market capit-
alization. The average firm size17 of these two industries rank the first and second, which is
much higher than the other industries. This is consistent with the observation that the firms in
these two industries are typically state-owned enterprises and tend to be large in size. We also
report the industry concentration proxy, which is calculated as the market capitalization of top
10% of the firms in the industry divided by the industry’s total market capitalization. Information
technology industry shows the highest concentration and its herding measure is also the largest
in magnitude among all industries. It suggests that more herding may occur in an industry with
greater monopolistic power.
Table 3 further presents the descriptive statistics for herding measures in different industries
for buy herd versus sell herd. It clearly shows that the mean herding measures in Table 2 are
deceiving as they are much smaller compared to the measures reported in Table 3. The average
herding measures for buy herd (HM >0) are all significantly positive while those for sell herd
(HM <0) are all significantly negative. From the herding measures estimated using Equation (1),
we can claim that herding exists in all industries on both buy side and sell side. Financial indus-
try, on average, demonstrates the largest herding on both buy and sell sides. On the other hand,
utilities industry shows the lowest herding level on the buy side and real estate industry has the
Table 2. A Overall industry descriptive statistics.
Total # Monthly # of stocks Herding %Market Average industry Quarterly annual Shares Return
Industry of stocks with herding measure Cap firm size concentration Daily return return return turnover volatility
A. Agriculture 55 36 0.0133 1.15% 0.02% 31.65% 1.09% 2.75% 17.88% 67.75% 2.98%
B. Mining 57 36 0.0298 9.70% 0.17% 53.93% 1.08% 5.61% 39.59% 50.61% 2.90%
C. Manufacturing 1,522 926 0.0315 38.96% 0.03% 46.12% 0.55% 2.93% 22.05% 57.90% 2.92%
D. Utilities 71 64 0.0072 5.01% 0.07% 52.14% 0.51% 2.21% 16.18% 47.17% 2.61%
E. Construction 56 34 0.0291 1.57% 0.03% 40.12% 0.66% 2.37% 19.91% 53.65% 2.91%
F. Transportation 85 65 0.0074 5.81% 0.07% 45.13% 0.56% 1.53% 12.90% 40.58% 2.57%
G. Information Technology 216 109 0.0454 5.15% 0.02% 54.69% 0.60% 1.31% 13.32% 58.46% 3.01%
H. Wholesale/Retail 124 95 0.0199 4.12% 0.03% 38.99% 0.34% 3.49% 24.21% 44.87% 2.76%
I. Financial 39 25 0.0177 17.23% 0.44% 41.48% 0.76% 4.99% 34.75% 37.44% 2.45%
J. Real Estate 94 87 0.0030 4.85% 0.05% 49.64% 0.88% 4.61% 27.06% 52.30% 2.89%
K. Services 74 47 0.0402 1.81% 0.02% 37.08% 0.50% 3.03% 20.18% 57.94% 2.87%
L. Media & Entertainment 30 16 0.0385 0.70% 0.02% 29.74% 0.56% 1.74% 15.18% 63.97% 2.96%
M. Comprehensive 84 78 0.0060 3.82% 0.05% 37.66% 0.53% 3.63% 24.22% 54.72% 2.79%
This table presents industry descriptive statistics for some key variables. The sample period covers from December 2003 to December 2012. The first column is the total number of stocks
on average over the sample period in each industry, the second column is the monthly average number of stocks that have herding measure significantly different from zero in each
industry, and the third column is the mean herding measure for each industry. The herding measure (HM) is the calculated from Equation (1): HMi, t ¼ ðbi, t  bt Þ 
ðbi, t1  bt1 Þ, where
bi , t
(bi,t) is the buyer ratio for each stock in every quarter defined as bi, t ¼ bi, t þs i, t
, bt is the market average buyer ratio, and ðbi, t1  bt1 Þ is the lag term of bi, t  bt : Among other varia-
bles, %market cap is the industry’s market capitalization as a percent of total market capitalization, measured at the end of quarter t; average firm size is the %market cap divided by the
total number of stocks in each industry; industry concentration is the market capitalization of top 10% of the firms of the industry; daily, quarterly and annual returns are the industry’s
average daily, quarterly and annual returns after the institutional holding information is disclosed at the end of each quarter; Share turnover is the average monthly trading volume of
stock i divided by total shares outstanding, measured in the last month of quarter t; Return volatility is the variance of the stock’s daily return, measured in the last month of quarter t.
THE CHINESE ECONOMY
7
8 L. ZHU ET AL.

Table 3. Industry herding measure descriptive statistics for Buy Herd vs. Sell Herd.
Buy Herd Sell Herd
N Mean Std. Dev. Minimum Maximum N Mean Std. Dev. Minimum Maximum
A. Agriculture 53 0.3134 0.1439 0.1010 0.7305 53 0.3231 0.1472 0.8924 0.1160
B. Mining 54 0.3035 0.0738 0.0984 0.5686 56 0.3276 0.1034 0.6724 0.1177
C. Manufacturing 1454 0.2902 0.1118 0.0141 1.1005 1477 0.3223 0.1174 1.0724 0.0308
D. Utilities 70 0.2684 0.0561 0.1558 0.3906 70 0.2885 0.0695 0.4875 0.1477
E. Construction 54 0.3103 0.1747 0.0276 0.9914 55 0.3210 0.1106 0.6308 0.1066
F. Transportation 83 0.2805 0.0987 0.0692 0.9003 82 0.2962 0.0846 0.5581 0.0859
G. Information 197 0.2861 0.1242 0.0141 0.7692 208 0.3386 0.1593 1.3724 0.0308
Technology
H. Wholesale/Retail 120 0.2935 0.1176 0.0272 0.9312 121 0.3004 0.0986 0.7997 0.1076
I. Financial 39 0.3270 0.1174 0.1373 0.7276 38 0.3762 0.1529 1.0188 0.1846
J. Real Estate 94 0.2824 0.0832 0.0924 0.6066 94 0.2861 0.0769 0.5937 0.1525
K. Services 69 0.2830 0.1143 0.0276 0.7110 72 0.3218 0.1277 0.7724 0.0633
L. Media & 28 0.2753 0.1219 0.0870 0.6276 30 0.2941 0.1223 0.7533 0.1170
Entertainment
M. Comprehensive 84 0.2661 0.0727 0.1260 0.4539 83 0.2690 0.0649 0.4776 0.0997
This table presents descriptive statistics of herding measure for each industry based on buy herd and sell herd separately. The
sample period covers from December 2003 to December 2012. The number of firms and the mean, standard deviation, min-
imum and maximum of herding measures are reported in order in each column. For herding measure estimation, see Table 2.

lowest herding level on the sell side when comprehensive category is excluded. This is in line
with the finding in Zheng et al. (2017) on the industry herding in nine Asian markets that finan-
cial and technology industries demonstrate stronger herding while herding in utilities industry
is lower.

Empirical analysis
To test both the short-term and long-term herding effects, we follow Zheng et al. (2015) and
select three time periods: one day, one quarter, and one year that represent the short, medium,
and long term. Based on Equation (2), we rewrite the estimation equation as follows.18,19
Ri, tþ1  rf , tþ1 ¼ a þ b1 HMi, t þ b2 ðRm, t  rf , t Þ þ b3 Ri, t þ b4 TOi, t þ b5 Voli, t þ b6 SMBt
(3)
þ b7 HMLt þ b8 MOMt þ b9 Illiqt þ ei, t
where Ri, tþ1 is the return of stock i over the next time period after intuitional holding changes
are reported at the end of each quarter. rf , tþ1 is one-month Chinese treasury bill rate. HMi,t is
the herding measure calculated from Equation (1). Rm, t  rf , t is the market risk premium, where
Rm, t is equally weighted stock market return based on one day, one quarter and one year at time
t that has the same return interval as the dependent variable. We add a set of firm-level historical
stock pricing variables, including lagged excess stock return (Ri, t Þ, stock trading volume turnover
(TOi,t, calculated as monthly trading volume of stock i divided by total shares outstanding, meas-
ured in the last month of quarter t), and stock return volatility (Voli,t, is variance of the stock’s
daily return, measured in the last month of quarter t). These variables have been documented to
contribute significantly in explaining future stock returns in the previous literature (Ang,
Hodrick, Xing, & Zhang, 2006, 2009; Bae, Kim, & Nelson, 2007; Huang, 2009). We also include
three price factors proposed by Fama and French (1993) that have been widely used in the asset
pricing studies. SMBt is the size risk factor, which is defined as the return on small market value
portfolio minus the return on large market value portfolio for a given month. HMLt measures value
premium and is calculated as the return on high book-to-market value portfolio minus the return
on low book-to-market value portfolio for a given month. In addition, two more control variables
MOMt and Illiqt are incorporated into the equation. Jegadeesh and Titman (1993) and Carhart
(1997) argue that high-performance funds earn higher-than-average returns persistently, and
 THE CHINESE ECONOMY 9

Table 4. Herding and stock returns for whole sample.

Model 1 Model 2 Model 3
Intercept 0.0056 (12.56) 0.0734 (27.28) 0.1237 (13.32)
HMi,t 0.0022 (3.23) 0.0788 (18.99) 0.3674 (25.72)
Rm,t 0.1146 (49.15) 1.0770 (69.97) 1.9690 (41.58)
Returni,t 0.0926 (12.97) 0.0207 (4.06) 0.2347 (44.33)
TOi,t 0.0001 (11.20) 0.0003 (9.26) 0.0001 (1.25)
Voli,t 0.0605 (7.55) 0.2020 (4.11) 0.8864 (5.99)
SMBt 13.0251 (28.25) 88.3154 (31.58) 288.8950 (29.27)
HMLt 9.8106 (25.41) 128.9779 (53.46) 132.6830 (16.84)
MOMt 1.1856 (12.97) 5.4080 (9.80) 11.4578 (6.97)
Illiqt 4.3717 (7.73) 37.1303 (10.55) 167.6337 (13.71)
R2 0.0832 0.1811 0.1318
This table reports regression results of future excess stock returns on the herding measure proposed by Lakonishok et al.
(1992) for the whole sample. Model 1 reports regression results based on next one day excess returns, Model 2 reports
regression results based on next one quarter excess returns, and Model 3 reports regression results based on next one year
excess returns.
It shows the regression results for Equation (3) as the following:

Ri, tþ1  rf , t ¼ a þ b1 HMi, t þ b2 ðRm, t  rf , t1 Þ þ b3 Ri, t þ b4 TOi, t þ b5 Voli, t þ b6 SMBt

þ b7 HMLt þ b8 MOMt þ b9 Illiqt þ ei, t 26
(3)

where ðRm, t  rf , t Þ is the market risk premium where Rm,t is the equally weighted market return, SMBt is small market value
portfolio return minus large market value portfolio return for a given month, HMLt is high book-to-market value portfolio
return minus low book-to-market value portfolio return for a given month, MOMt is the winner portfolio return minus loser
portfolio return for a given month, and Illiqt is illiquid portfolio return minus liquid portfolio return for a given month,.
Details about the size, book-to-market, momentum, and liquidity portfolios formation are provided in footnote 10. Rt
is lagged one-period return of Ri, tþ1 , Voli,t is the variance of the stock’s daily return, measured in the last month of quarter
t, and TOi,t is the monthly trading volume of stock i divided by total shares outstanding, measured in the last month of
quarter t. T-stats are in parentheses.
, ,  denotes that coefficient is significant at 1%, 5%, and 10%, respectively.

stocks with poor performance tend to have lower-than-average returns in the next time period.
The momentum factor MOMt is defined as the return of past six-month winner stock portfolio
minus past six-month loser stock portfolio. According to Amihud (2002), and Acharya and
Pedersen (2005), investors require a higher expected return for illiquid stocks relative to liquid
stocks due to the uncertainty. The illiquidity price factor Illiqt is formed as the return difference
between the most illiquid stock portfolio and the most liquid stock portfolio for a given month.

5.1. Institutional herding at the market level

We first examine the relationship between institutional herding and future excess stock returns
in China’s A-share market for the whole sample. Table 4 shows the regression results. The
estimations of future excess stock returns in one day, one quarter and one year are reported
separately as Model 1, Model 2 and Model 3.
The herding measure is statistically significant across all three models. It suggests that
institutional herding affects future stock returns for all short, medium and long periods of time.
The positive sign provides evidence that future excess returns are higher when more institutional
investors herd on the buy side. The individual/amateur investors may follow the large institu-
tional investors and drive the stock price to the same direction. The coefficient of the herding
measure is the largest in Model 3, which suggests that the herding effect is stronger in the long
term than that in the short term. We further examine the differences between buy herding and
sell herding in the next section.
In general, the control variables are all significant except share turnover variable in model 3.
The lagged excess stock return is positively related to the future excess return in the short run,
10 L. ZHU ET AL.

Table 5 .Buy and sell herd and stock returns.

Panel A: Buy herd and stock returns
Model 1 Model 2 Model 3
Intercept 0.0044 (7.53) 0.0731 (21.29) 0.1020 (8.76)
HMi,t 0.0037 (4.14) 0.0811 (15.19) 0.4119 (22.55)
Rm,t 0.1157 (44.78) 1.1024 (66.90) 2.0505 (39.85)
Returni,t 0.0910 (11.74) 0.0199 (3.75) 0.2368 (41.46)
TOi,t 0.0000 (9.93) 0.0002 (8.35) 0.0002 (1.94)
Voli,t 0.0532 (6.30) 0.1918 (3.84) 0.7616 (5.01)
SMBt 12.7777 (24.97) 87.7812 (29.30) 304.1520 (28.90)
HMLt 10.5364 (23.77) 121.7636 (45.64) 135.7524 (16.00)
MOMt 1.2034 (12.11) 6.3940 (11.04) 14.4745 (8.29)
Illiqt 3.4103 (5.45) 29.5114 (7.85) 182.7049 (14.05)
R2 0.0778 0.1768 0.1295
Panel B: Sell herd and stock returns
Model 1 Model 2 Model 3
Intercept 0.0160 (8.52) 0.0990 (7.01) 0.1466 (3.64)
HMi,t 0.0031 (0.59) 0.0493 (1.23) 0.1911 (1.68)
Rm,t 0.0963 (14.38) 0.7694 (13.80) 1.4266 (9.90)
Returni,t 0.0964 (3.79) 0.0114 (0.46) 0.2042 (11.99)
TOi,t 0.0001 (6.94) 0.0005 (2.73) 0.0005 (1.07)
Voli,t 0.5720 (8.96) 1.3217 (2.75) 11.7835 (8.96)
SMBt 18.7249 (13.80) 78.0587 (7.55) 78.9995 (2.20)
HMLt 7.8118 (6.13) 136.0317 (13.71) 124.2045 (4.51)
MOMt 1.0557 (3.53) 6.8574 (3.02) 28.3923 (4.88)
Illiqt 12.0038 (6.60) 65.6859 (4.64) 72.1956 (1.51)
R2 0.2254 0.1853 0.2137
This table reports regression results of future excess stock returns on the herding measure proposed by Lakonishok et al.
(1992) for buy herd and sell herd portfolios. Panel A shows the results for data that investors herd on buy side of stocks
and Panel B shows the results for data that investors herd on sell side of stocks. Model 1 reports regression results based
on next one day excess returns, Model 2 reports regression results based on next one quarter excess returns, and Model 3
reports regression results based on next one years excess returns.
It shows the regression results for Equation (3) as the following:

Ri, tþ1  rf , t ¼ a þ b1 HMi, t þ b2 ðRm, t  rf , t1 Þ þ b3 Ri, t þ b4 TOi, t þ b5 Voli, t þ b6 SMBt

þ b7 HMLt þ b8 MOMt þ b9 Illiqt þ ei, t 27
(3)

where ðRm, t  rf , t Þ is the market risk premium where Rm,t is the equally weighted market return, SMBt is small market value
portfolio return minus large market value portfolio return for a given month, HMLt is high book-to-market value portfolio
return minus low book-to-market value portfolio return for a given month, MOMt is the winner portfolio return minus loser
portfolio return for a given month, and Illiqt is illiquid portfolio return minus liquid portfolio return for a given month,.
Details about the size, book-to-market, momentum, and liquidity portfolios formation are provided in footnote 10. Rt is
lagged one-period return of Ri, tþ1 , Voli,t is stock i volatility measured in the last month of a given quarter, and TOi,t is stock
i trading volume turnover measured in the last month of a given quarter. T-stats are in parentheses.
, ,  denotes that coefficient is significant at 1%, 5%, and 10% respectively.

but has a negative effect on the excess return in the medium and long run. It suggests that stock
prices follow the momentum in the short run, but may experience a long-term price reversal.20
The share turnover variable (TO) shows a significantly positive effect on the future stock return
in the short and medium run. However, the effect is relatively small. The impact of volatility
(VOL) on future excess return is significantly negative in the short run, but significantly positive
in the medium and long run. The volatile stock returns may send signals to the investors of high
risk and uncertainty, which leads to negative expected returns in the short run. In the long run,
the relationship between the risk and return is consistent with the theory that potential
return rises with increased risk. For the illiquidity variable (Illiq), it is positively associated with
short-term and long-term excess stock returns, but is negatively associated with medium-term
(quarterly) excess stock returns. The positive relationships are consistent with Amihud (2002)
that investors require a higher expected return for illiquid stocks. For the negative association
 THE CHINESE ECONOMY 11

between illiquidity and quarterly excess returns, it is possible that investors overact to stock’s
illiquidity in the short term, so corrections are made (return reversal) in the medium term,
but the illiquidity premium is still priced in the long run.21 The Fama-French price factors and
momentum (MOM) variable are all statistically significant in predicting excess stock returns.

5.2. Buy vs. Sell herding

Previous literature find buy and sell herding lead to different stock return reactions (Kremer &
Nautz, 2013; Wermers, 1999). Buy herding is positively related to the expected stock return and
sell herding has a negative impact. We expect that the buy herding effect is more significant
in Chinese stock market because short sale is not allowed by individual investors in China. We
divide our sample to two subsamples: buy side herding and sell side herding. The results are
reported in Table 5.
In Table 5, panel A shows buy side herding estimation and panel B shows sell side herding
result. We test herding effect for one day, one quarter and one year, which are represented as
Model 1 to Model 3 respectively. The herding measure is positive and significant across all three
models in Panel A. It is consistent with the estimations in Table 4. However, the magnitude
of the herding effect is larger than that for the whole sample. It suggests that buy side herding is
strong in China and it leads to high excess returns. In Panel B, the herding measure is not signifi-
cant except in Model 3. The sell side herding only has marginally significant impact on excess
stock returns in the long run. The results support our hypothesis that buy side herding affects
expected stock returns more than the sell side herding in China. To reduce abnormal fluctuations
and maintain the stability of the stock market, Chinese regulators imposed short-selling
restrictions. Our finding is consistent with the previous literature that institutional sell herding is
limited because institutional investors cannot sell securities short (Brown et al., 2014). Our results
are also comparable with Zheng et al. (2015) which examine both A-share and B-share markets
in China. However, the herding coefficients are larger for buy side herding in both the medium
and long terms in our study as we exclude the B-share market. Specifically, herding effect
is much underestimated in the long term if B-share market is included in the estimation
as the coefficient is more than three times larger than that in Zheng et al. (2015). It supports our
argument that foreign institutional investors, who dominate the B-share market, are more
rational. The estimations in Zheng et al. (2015) only focus on market level while we further
investigate the industry herding by institutional investors in the following section.

5.3. Industry level analysis

The effect of institutional herding on excess stock returns may vary across industries because
differences exist on the structure, regulatory environment and fundamentals in each industry.
For example, Choi and Sias (2009) provide strong evidence of institutional industry herding.
To our knowledge, Lee et al. (2013) and Yao et al. (2014) are the only papers that investigate the
industry herding in China’s stock market. However, both use cross-sectional price dispersion
measure to find strong herding in all sectors, which could include herding activities from both
individual and institutional investors. To further examine the institutional herding in China
at the industry level, our study uses firm-level data of institutional holding of stocks in each
industry. Based on Equation (3), we obtain the industry level estimations for one day, one quarter
and one year separately and the results are presented in Table 6.
Among all the industries, we find consistent herding effect in manufacturing and construction
industries. The herding measures are positive and statistically significant for all short, medium
and long periods of time in those two industries. It implies that the more investors herd on buy
side, the higher excess stock returns in the two industries. However, the magnitude of herding
12 L. ZHU ET AL.

Table 6. Industry-level institutional herding effect.

Agriculture Model 1 Model 2 Model 3
Intercept 0.0125 (4.96) 0.0775 (4.01) 0.0163 (0.26)
HMi,t 0.0034 (1.08) 0.1016 (4.14) 0.4770 (6.21)
Rm,t 0.1553 (14.02) 1.0078 (11.23) 2.0315 (7.82)
Returni,t 0.0309 (0.84) 0.0392 (1.23) 0.2647 (7.70)
TOi,t 0.0000 (0.36) 0.0002 (1.19) 0.0005 (0.93)
Voli,t 0.0450 (0.55) 0.0816 (0.13) 1.2598 (0.61)
SMBt 5.6722 (2.71) 61.9404 (3.79) 201.4894 (3.86)
HMLt 15.5690 (8.77) 110.0832 (7.70) 84.7690 (2.06)
MOMt 1.2012 (2.90) 8.1222 (2.52) 16.2790 (1.89)
Illiqt 8.8117 (3.42) 42.0701 (2.02) 132.1089 (2.07)
R2 0.1868 0.2036 0.1767
Mining Model 1 Model 2 Model 3
Intercept 0.0159 (6.17) 0.0883 (4.00) 0.2156 (2.21)
HMi,t 0.0025 (0.75) 0.1354 (4.64) 0.5622 (4.38)
Rm,t 0.1145 (9.61) 0.8802 (7.98) 1.9658 (4.32)
Returni,t 0.2218 (6.32) 0.0798 (2.40) 0.1701 (4.91)
TOi,t 0.0001 (4.94) 0.0014 (5.70) 0.0019 (1.99)
Voli,t 0.3399 (4.26) 1.5347 (2.21) 4.0102 (1.39)
SMBt 17.4470 (7.38) 68.8362 (3.37) 397.9192 (4.26)
HMLt 7.7567 (3.92) 182.7570 (10.10) 174.2769 (2.27)
MOMt 1.3589 (3.12) 11.8463 (3.15) 27.6234 (1.91)
Illiqt 11.0589 (3.79) 104.0311 (4.04) 251.4495 (2.13)
R2 0.2277 0.2263 0.1076
Manufacturing Model 1 Model 2 Model 3
Intercept 0.0048 (12.09) 0.0772 (20.98) 0.1532 (12.07)
HMi,t 0.0021 (3.56) 0.0754 (13.48) 0.3396 (17.64)
Rm,t 0.1142 (54.76) 1.0747 (51.18) 2.0772 (32.38)
Returni,t 0.0887 (14.61) 0.0216 (3.15) 0.2348 (33.00)
TOi,t 0.0000 (11.69) 0.0003 (7.09) 0.0003 (2.24)
Voli,t 0.0388 (6.67) 0.2172 (3.97) 0.8103 (5.12)
SMBt 14.2487 (34.68) 83.9907 (22.15) 278.0161 (20.79)
HMLt 10.7761 (31.16) 131.6843 (40.15) 150.2805 (14.11)
MOMt 1.2893 (15.82) 3.6122 (4.83) 8.1464 (3.68)
Illiqt 4.7386 (9.38) 46.0238 (9.62) 135.8164 (8.20)
R2 0.1736 0.1775 0.1326
Utilities Model 1 Model 2 Model 3
Intercept 0.0083 (5.25) 0.0837 (6.37) 0.0632 (1.47)
HMi,t 0.0031 (1.44) 0.0622 (3.42) 0.3466 (5.90)
Rm,t 0.0959 (13.60) 0.9319 (14.31) 1.9050 (9.98)
Returni,t 0.0771 (3.38) 0.0345 (1.33) 0.3598 (13.97)
TOi,t 0.0001 (5.76) 0.0008 (5.67) 0.0006 (1.40)
Voli,t 0.2985 (5.03) 0.2749 (0.56) 1.5583 (1.01)
SMBt 9.5003 (6.96) 82.0128 (7.11) 189.5731 (5.03)
HMLt 9.0190 (8.04) 136.4348 (13.63) 99.5201 (3.26)
MOMt 0.9109 (3.42) 7.3832 (3.29) 11.4634 (1.76)
Illiqt 1.3385 (0.80) 49.1199 (3.36) 101.0553 (2.18)
R2 0.1654 0.2521 0.1483
Construction Model 1 Model 2 Model 3
Intercept 0.0075 (3.29) 0.1034 (5.32) 0.0146 (0.22)
HMi,t 0.0066 (2.23) 0.1220 (4.71) 0.3272 (3.56)
Rm,t 0.1300 (12.45) 0.9371 (9.41) 1.9446 (6.19)
Returni,t 0.0284 (0.86) 0.0521 (1.49) 0.3314 (9.04)
TOi,t 0.0001 (3.04) 0.0001 (0.55) 0.0001 (0.19)
Voli,t 0.2073 (3.02) 0.8295 (1.40) 4.5819 (2.35)
SMBt 14.5934 (7.12) 114.9332 (6.50) 335.3354 (5.26)
HMLt 11.0441 (6.34) 136.2189 (8.95) 65.6971 (1.30)
MOMt 1.2321 (3.07) 1.8879 (0.55) 8.6822 (0.86)
Illiqt 4.7388 (1.87) 21.1145 (0.95) 278.3361 (3.55)
R2 0.2114 0.2066 0.1704
Transportation Model 1 Model 2 Model 3
Intercept 0.0114 (8.02) 0.0744 (5.70) 0.0391 (0.93)
HMi,t 0.0004 (0.19) 0.0412 (2.10) 0.3323 (5.24)
(continued)
 THE CHINESE ECONOMY 13

Table 6. Continued.
Transportation Model 1 Model 2 Model 3
Rm,t 0.1067 (15.38) 0.7887 (11.53) 1.6149 (7.84)
Returni,t 0.1077 (4.31) 0.0332 (1.25) 0.2818 (10.89)
TOi,t 0.0001 (5.63) 0.0009 (4.66) 0.0006 (1.11)
Voli,t 0.3733 (7.08) 0.4683 (0.94) 1.8504 (1.20)
SMBt 14.6355 (10.86) 110.9343 (8.79) 288.1780 (6.91)
HMLt 8.9418 (8.14) 110.3657 (10.37) 47.2521 (1.43)
MOMt 1.0561 (4.06) 9.0629 (3.73) 10.5239 (1.52)
Illiqt 6.7010 (4.08) 8.2099 (0.52) 251.5626 (4.90)
R2 0.2368 0.1787 0.1582
Information technology Model 1 Model 2 Model 3
Intercept 0.0069 (4.97) 0.1069 (9.82) 0.0637 (1.68)
HMi,t 0.0028 (1.62) 0.0576 (4.15) 0.2043 (4.30)
Rm,t 0.1114 (17.68) 1.1542 (21.47) 2.0284 (12.21)
Returni,t 0.1063 (5.01) 0.0381 (2.07) 0.2215 (11.02)
TOi,t 0.0000 (3.40) 0.0001 (0.70) 0.0000 (0.01)
Voli,t 0.1304 (3.14) 1.6805 (5.13) 5.7239 (4.90)
SMBt 14.8597 (12.25) 65.3735 (6.89) 221.4403 (6.53)
HMLt 9.3466 (8.90) 122.7430 (14.65) 192.9880 (7.19)
MOMt 1.4165 (5.66) 1.7434 (0.90) 0.1359 (0.02)
Illiqt 6.8923 (4.61) 61.1225 (5.11) 28.4032 (0.68)
R2 0.1506 0.2114 0.1443
Wholesales/retail Model 1 Model 2 Model 3
Intercept 0.0087 (6.10) 0.0746 (-6.03) 0.0652 (1.57)
HMi,t 0.0027 (1.43) 0.1088 (6.40) 0.5314 (9.45)
Rm,t 0.1079 (16.95) 1.0919 (18.00) 2.3602 (12.78)
Returni,t 0.0865 (4.11) 0.0359 (1.70) 0.2740 (12.88)
TOi,t 0.0001 (6.29) 0.0003 (2.07) 0.0008 (1.72)
Voli,t 0.3344 (6.69) 0.5540 (1.26) 3.9209 (2.74)
SMBt 11.9637 (9.68) 87.3894 (7.93) 324.6772 (8.80)
HMLt 9.8118 (9.66) 107.8277 (11.55) 98.9233 (3.32)
MOMt 0.9481 (3.92) 8.7412 (4.08) 16.4298 (2.59)
Illiqt 3.0667 (2.04) 13.3585 (0.96) 241.9601 (5.26)
R2 0.1807 0.1889 0.1814
Financial Model 1 Model 2 Model 3
Intercept 0.0108 (6.43) 0.0231 (1.23) 0.2598 (3.70)
HMi,t 0.0030 (1.01) 0.0192 (0.58) 0.3275 (2.58)
Rm,t 0.0821 (7.85) 0.8356 (6.41) 1.5712 (3.38)
Returni,t 0.2842 (6.05) 0.0026 (0.06) 0.1409 (3.19)
TOi,t 0.0000 (1.73) 0.0001 (0.42) 0.0012 (1.20)
Voli,t 0.1233 (3.16) 1.5390 (3.39) 2.6799 (1.81)
SMBt 8.3045 (3.64) 93.5205 (3.62) 406.8428 (3.82)
HMLt 4.1440 (2.25) 71.3300 (3.22) 52.4162 (0.63)
MOMt 0.9196 (2.21) 9.1227 (1.94) 49.1944 (3.14)
Illiqt 11.5582 (4.10) 29.8334 (0.90) 507.7513 (3.81)
R2 0.1945 0.0954 0.0749
Real estate Model 1 Model 2 Model 3
Intercept 0.0040 (0.57) 0.0565 (4.08) 0.1020 (2.12)
HMi,t 0.0161 (1.46) 0.0783 (3.56) 0.5199 (7.27)
Rm,t 0.1173 (3.16) 1.3367 (17.02) 1.3903 (5.94)
Returni,t 0.0465 (0.37) 0.0544 (2.24) 0.2565 (11.01)
TOi,t 0.0001 (1.54) 0.0007 (4.35) 0.0003 (0.69)
Voli,t 0.1516 (1.22) 0.0757 (0.30) 2.4289 (2.47)
SMBt 1.0341 (0.14) 160.5300 (11.08) 400.0774 (8.33)
HMLt 5.3258 (0.90) 139.2360 (11.47) 67.9277 (1.76)
MOMt 1.6221 (1.13) 15.3493 (5.38) 30.4609 (3.67)
Illiqt 4.8009 (0.54) 34.9135 (1.95) 363.3705 (6.12)
R2 0.0058 0.2061 0.1333
Services Model 1 Model 2 Model 3
Intercept 0.0099 (4.71) 0.0772 (3.99) 0.1305 (2.28)
HMi,t 0.0043 (1.51) 0.1241 (4.66) 0.3641 (4.61)
Rm,t 0.1064 (10.92) 1.0907 (11.36) 1.8847 (7.04)
(continued)
14 L. ZHU ET AL.

Table 6. Continued.
Services Model 1 Model 2 Model 3
Returni,t 0.1316 (4.53) 0.0315 (1.10) 0.2213 (7.01)
TOi,t 0.0000 (2.12) 0.0001 (0.71) 0.0005 (0.89)
Voli,t 0.2701 (3.74) 0.7473 (1.12) 1.5082 (0.78)
SMBt 17.4054 (9.32) 98.9518 (5.70) 278.6644 (5.29)
HMLt 10.8998 (6.85) 142.6892 (9.49) 64.8544 (1.52)
MOMt 1.0890 (2.96) 10.1742 (2.98) 19.8498 (2.33)
Illiqt 7.6022 (3.29) 35.0740 (1.61) 234.2120 (3.54)
R2 0.1934 0.1586 0.1368
Media and entertainment Model 1 Model 2 Model 3
Intercept 0.0073 (2.04) 0.0908 (3.19) 0.0716 (0.84)
HMi,t 0.0040 (0.88) 0.1528 (4.10) 0.3561 (3.05)
Rm,t 0.0834 (5.34) 0.9272 (6.71) 2.2574 (5.61)
Returni,t 0.0975 (2.15) 0.0376 (0.75) 0.2380 (4.20)
TOi,t 0.0000 (0.60) 0.0003 (1.67) 0.0002 (0.33)
Voli,t 0.0900 (0.77) 0.2236 (0.24) 0.7316 (0.27)
SMBt 12.3316 (4.06) 43.0750 (1.76) 178.6537 (2.27)
HMLt 10.7093 (4.08) 127.4794 (5.76) 86.7619 (1.32)
MOMt 0.9039 (1.38) 4.3706 (0.83) 14.2843 (1.05)
Illiqt 2.5621 (0.69) 82.0527 (2.66) 105.6895 (1.07)
R2 0.1172 0.1962 0.1352
Comprehensive Model 1 Model 2 Model 3
Intercept 0.0088 (5.34) 0.0842 (5.69) 0.1476 (2.86)
HMi,t 0.0004 (0.18) 0.0965 (4.65) 0.5511 (7.59)
Rm,t 0.1016 (13.48) 1.2091 (16.62) 1.9521 (8.33)
Returni,t 0.0956 (3.86) 0.0334 (1.40) 0.2389 (9.94)
TOi,t 0.0001 (3.33) 0.0004 (2.65) 0.0003 (0.57)
Voli,t 0.1624 (2.94) 0.9221 (1.86) 0.2365 (0.14)
SMBt 10.9445 (7.47) 118.9883 (9.01) 293.1759 (6.25)
HMLt 8.5399 (7.25) 133.3962 (12.20) 127.5376 (3.40)
MOMt 0.4088 (1.42) 12.5438 (4.85) 16.7341 (2.04)
Illiqt 2.7875 (1.58) 3.4562 (0.21) 182.5382 (3.17)
R2 0.1363 0.2079 0.1321
This table reports regression results for different industries. Model 1 reports regression results based on next one day excess
returns, Model 2 reports regression results based on next one quarter excess returns, and Model 3 reports regression results
based on next one year excess returns.
It shows the regression results for Equation (3) as the following:

Ri, tþ1  rf , t ¼ a þ b1 HMi, t þ b2 ðRm, t  rf , t1 Þ þ b3 Ri, t þ b4 TOi, t þ b5 Voli, t þ b6 SMBt

þ b7 HMLt þ b8 MOMt þ b9 Illiqt þ ei, t 28
(3)

where ðRm, t  rf , t Þ is the market risk premium where Rm,t is the equally weighted market return, SMBt is small market value
portfolio return minus large market value portfolio return for a given month, HMLt is high book-to-market value portfolio
return minus low book-to-market value portfolio return for a given month, MOMt is the winner portfolio return minus loser
portfolio return for a given month, and Illiqt is illiquid portfolio return minus liquid portfolio return for a given month,.
Details about the size, book-to-market, momentum, and liquidity portfolios formation are provided in footnote 10. Rt
is lagged one-period return of Ri, tþ1 , Voli,t is stock i volatility measured in the last month of a given quarter, and TOi,t
is stock i trading volume turnover measured in the last month of a given quarter. T-stats are in parentheses.
, ,  denotes that coefficient is significant at 1%, 5%, and 10% respectively.

effect is larger for construction than that for manufacturing industry in the short and medium
term. Financial industry is found to be the industry that shows institutional herding effect only in
the long term.22 In general, institutional herding has a strong impact on medium-term (next
quarter) and long-term (next year) future excess returns for the rest of ten industries. This sug-
gests that once firms report their institutional investor holding information, investors will digest
that information and prices will reflect the change in one quarter or one year’s time. Comparing
the coefficients of the herding measure, the impact of institutional herding is strongest for media
and entertainment sector in the medium term, and for mining sector in the long term.
 THE CHINESE ECONOMY 15

Table 7. Institutional herding in the sub-industry sectors.

Panel A: Manufacturing Sub-Sectors
Sector Model 1 Model 2 Model 3
Food and Beverage 0.0045 (2.01) 0.1010 (5.50) 0.3044 (5.18)
Textile 0.0025 (0.99) 0.0423 (1.99) 0.2527 (3.42)
Timber 0.0146 (2.05) 0.0406 (0.60) 0.1339 (0.62)
Paper 0.0006 (0.20) 0.0342 (1.28) 0.1690 (2.10)
Chemicals 0.0026 (1.89) 0.0756 (6.07) 0.3139 (7.62)
Electronics 0.0042 (2.07) 0.0135 (0.82) 0.0561 (1.16)
Metal 0.0056 (3.26) 0.0924 (5.43) 0.4669 (7.60)
Machinery and Equipment 0.0031 (2.81) 0.0818 (7.69) 0.3733 (9.82)
Medical 0.0000 (0.02) 0.0865 (5.08) 0.3887 (6.81)
Panel B: Construction Sub-Sectors
Sector Model 1 Model 2 Model 3
Construction 0.0075 0.1273 0.3452
(2.30) (4.53) (3.41)
Construction materials 0.0039 0.0727 0.1867
(0.44) (0.81) (0.74)
T-stats are in parentheses. , ,  denotes that coefficient is significant at 1%, 5%, and 10% respectively.

To deepen our understanding of the institutional herding behavior in the manufacturing sector,
we examine the herding effect in all nine manufacturing sub-sectors: food & beverage, textile, tim-
ber, paper, chemicals, electronics, metal, machinery & equipment, and medicals. Using Equation
(3), we test how the herding measure affects future excess stock returns in the short, medium, and
long term (Models 1–3). The results are reported in Table 7 Panel A.23 The institutional herding
has a significant and positive effect on future stock returns at all time horizons in four sectors
including food & beverage, chemicals, metal, and machinery & equipment. Timber and electronics
sectors show significant herding effects only in the short-term, while herding has a significantly
positive impact on paper sector only in the long-term. The relationship between institutional herd-
ing and medium or long term excess return is positive and significant in textile and medical sectors.
In summary, the impact of institutional herding is strongest in timber sector in the short term, in
food & beverage sector in the medium term, and in metal sector in the long term.
There are two sub-sectors in construction industry: primary construction and construction mate-
rials (see Table 7 Panel B). The strong impact from herding is shown from primary construction
sub-sector where the main projects are completed. The construction materials sub-sector does not
appear to have this herding-return relationship. China’s construction sector has been expanding
quickly with an average revenue growth rate of 23% from 2000 to 2010 (EU SME Center, 2015).
The main driving force behind the boom of construction sector is the urbanization over the deca-
des. Since the economic reform in 1978, the permanent urban residents in China has risen from
17.9% of the total population to 53.7% in 2013. China is the world’s largest construction market
with the output value accounting for 26.4% of the GDP in 2012. In 2014, the government released
“National Plan on New Urbanization”, which aimed at 60% urbanization rate. The goal was to
have further settlement of 100 million urban residents by 2020. To accommodate the increase in
migrants, Chinese government also plans to expand the infrastructure network including high-speed
railways, expressways and airports. As the construction sector is highly influenced by these macro-
economic policies which sometimes lack transparency, it is possible that investors follow the trend
to make investment decisions instead of looking at firm’s fundamentals.
We further explore the relationship between herding measure and industry characteristics to
see which type of industry might experience more herding. Scatter plots show that average firm
size has a significant and negative relationship with buy herd measure, but a significant and posi-
tive relationship with sell herd.24 This suggests that an industry with larger average firm size
tends to have less herding, both on the buy side and sell side. An industry with smaller firm size
16 L. ZHU ET AL.

tends to have more herding.25 Our result is consistent with findings in many papers in the infor-
mation-based herding literature as smaller firms tend to have more information asymmetry,
therefore leading to more herding (Hsieh, 2013; Lakonishok et al., 1992; Venezia et al., 2011;
Wermers, 1999).

Conclusion
The research on institutional industry herding in emerging markets is very limited due to data
limitation. This paper examines the effect of institutional herding on future excess stock returns
at both the market and industry level in China’s A-share market from 2003 to 2012. We use a
unique database that contains stock holding information of all types of institutional investors in
China and test the impact of institutional herding on stock returns at different time horizons.
The results provide strong evidence that institutional herding has a positive effect on future
excess stock returns in the short, medium and long run at the market level. The institutional
herding is more significant on buy side due to short sell restriction in China’s A-share market.
The buy herding leads to higher excess stock returns in the future. The industry-level analysis
reveals that manufacturing and construction are the two industries experience intuitional herding
effect at all time horizons. There is a significantly positive relation between institutional herding
and long-term excess stock returns in financial industry. The institutional herding has a signifi-
cant impact on medium-term and long-term future excess returns for the rest of ten sectors.
Using the unique dataset, our study sheds lights on the institutional herding in China. The
industry level estimation can help regulators make policy tailored to different sectors of the econ-
omy and stabilize the market. It also benefits foreign investors and companies to gain a better
understanding of China’s stock market, which has become more important in global financial
markets and crucial for risk management. For the future agenda, it would be interesting to fur-
ther investigate the reasons behind institutional herding in different industries.

Notes
1. As of March 2019, China market weights 33% in MSCI emerging market index, one of the most tracked
emerging market index. https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-
markets-index-usd-net.pdf
2. See Table 1.
3. Examples of other causes may include pursuit of momentum-investment strategy (DeLong, Shleifer,
Summer, & Waldmann, 1990; Froot, Scharfstein, & Stein, 1992).
4. Su and Xu, (2019) suggest that comment letters decrease information asymmetry and reduce institutional
investors’ informed trading.
5. Due to data limitation, our paper does not focus on differentiating the intentional and unintentional
herding, but rather mainly focus on how institutional industry herding impacts excess future stock
returns in China.
6. Please see data description in Section 4.
7. http://english.sse.com.cn/indices/statistics/market/
8. http://www.szse.cn/English/siteMarketData/marketStatistics/overview
9. https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-index-usd-net.pdf
10. China Securities Registration and Settlement Statistical Yearbook 2012 http://www.chinaclear.cn/zdjs/
editor_file/20130906103133909.pdf
11. Kremer et al. (2013) use the expected value of the difference between the buyer ratio and period-average
buyer ratio to smooth out the time series trends.
12. The discussion of buy and sell herding can also be found in Grinblatt, Titman, and Wermers, (1995) and
Wermers, (1999),
13. We drop stocks with less than 5 consecutive quarter’s institutional investors holding information to
ensure enough data points in the analysis.
14. GTA Information Technology, headquartered in Shenzhen, is a leading global provider of China financial
market data, China industries and economic data to international financial and educational institutions.
 THE CHINESE ECONOMY 17

15. WIND Information Co., headquartered in Shanghai, is a leading service provider of accurate and real-
time fundamental data, exchange data, earnings estimate data, market data, and sophisticated
communication platforms for financial professionals.
16. It measures the percentage of market value hold by institutional investors to the total market value of all
public traded stocks. Data are collected from research reports of Shenwan Hongyuan Securities, which is
one of the largest public security analysis companies in China. Its institution holding data are only
available from 2006.
17. Average firm size is measured by industry market value as % of total market value divided by the total
number of firms in the industry.
18. Panel regressions are employed that include time-fixed effects and allow for clustering of the standard
errors by firm. The t-statistics are adjusted for autocorrelation following Newey and West (1987).
19. Fama-French-Carhart variables and the liquidity variable are market variables, and most notably in
application to evaluate portfolio performance. However, they could also be considered as state variables to
evaluate general single asset returns. See Petkova, (2006), Bali and Engle, (2010), Fama and French, (2012).
20. Yu, (2017) investigates the momentum and reversal phenomenon in the Chinese stock market and finds
the reversal effect is increasingly significant in the long horizon.
21. Medium-term return reversal has been widely documented in the literature. For example: Jegadeesh and
Titman (1993) and Iihara, Kato and Tokunagal (2004).
22. This coincides with the finding in Yao et al., (2014) that Financials industry does not exhibit herding. It
is argued that China’s financial industry is heavily regulated and therefore there is less uncertainty with
the industry stocks.
23. To save space, we only report the coefficients of the herding measure.
24. Financial and Mining industries are excluded as these two industries have much larger average firm size
than the other industries and tend to distort the relationship. The firms in these two industries are more
oligopolistic due to their state-ownership status.
25. The scatter plots are not reported in the paper, but are available upon requests. The results need to be
interpreted cautiously due to small number of industries in our sample.
26. Panel regressions are employed that include time-fixed effects and allow for clustering of the standard
errors by firm. The t-statistics are adjusted for autocorrelation following Newey and West (1987).
27. Panel regressions are employed that include time-fixed effects and allow for clustering of the standard
errors by firm. The t-statistics are adjusted for autocorrelation following Newey and West (1987).
28. Panel regressions are employed that include time-fixed effects and allow for clustering of the standard
errors by firm. The t-statistics are adjusted for autocorrelation following Newey and West (1987).

References
Acharya, V. V., & Pedersen, L. H. (2005). Asset pricing with liquidity risk. Journal of Financial Economics, 77(2),
375–410. doi:10.1016/j.jfineco.2004.06.007
Amihud, Y. (2002). Illiquidity and stock returns: Cross-section and time-series effects. Journal of Financial
Markets, 5(1), 31–56. doi:10.1016/S1386-4181(01)00024-6
Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2006). The cross-section of volatility and expected returns. The
Journal of Finance, 61(1), 259–299. doi:10.1111/j.1540-6261.2006.00836.x
Ang, A., Hodrick, R. J., Xing, Y., & Zhang, X. (2009). High idiosyncratic volatility and low returns: International
and further US evidence. Journal of Financial Economics, 91(1), 1–23. doi:10.1016/j.jfineco.2007.12.005
Bae, J., Kim, C. J., & Nelson, C. R. (2007). Why are stock returns and volatility negatively correlated?. Journal of
Empirical Finance, 14(1), 41–58. doi:10.1016/j.jempfin.2006.04.005
Bali, T. G., & Engle, R. F. (2010). The intertemporal capital asset pricing model with dynamic conditional correla-
tions. Journal of Monetary Economics, 57(4), 377–390. doi:10.1016/j.jmoneco.2010.03.002
Banerjee, A. V. (1992). A simple model of herd behavior. The Quarterly Journal of Economics, 107(3), 797–817.
doi:10.2307/2118364
Barberis, N., & Shleifer, A. (2003). Style investing. Journal of Financial Economics, 68(2), 161–199. doi:10.1016/
S0304-405X(03)00064-3
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as
informational cascades. Journal of Political Economy, 100(5), 992–1026. doi:10.1086/261849
Bikhchandani, S., & Sharma, S. (2001). Herd behavior in stock market. IMF Working Papers, 47(3), 279–310. doi:
10.5089/9781451846737.001
Bohl, M. T., & Brzeszczy nski, J. (2006). Do institutional investors destabilize stock prices? Evidence from an
emerging market. Journal of International Financial Markets, Institutions and Money, 16(4), 370–383. doi:10.
1016/j.intfin.2005.05.005
18 L. ZHU ET AL.

Brown, N. C., Wei, K. D., & Wermers, R. (2014). Analyst recommendations, mutual fund herding, and overreac-
tion in stock prices. Management Science, 60(1), 1–20.
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57–82. doi:10.
1111/j.1540-6261.1997.tb03808.x
Chen, Y. F., Wang, C. Y., & Lin, F. L. (2008). Do qualified foreign institutional investors herd in Taiwan’s secur-
ities Market?. Emerging Markets Finance and Trade, 44(4), 62–74. doi:10.2753/REE1540-496X440405
Chiang, T. C., Li, J., & Tan, L. (2010). Empirical investigation of herding behavior in Chinese stock markets:
Evidence from quantile regression analysis. Global Finance Journal, 21(1), 111–124. doi:10.1016/j.gfj.2010.03.005
Choi, N., & Sias, R. W. (2009). Institutional industry herding. Journal of Financial Economics, 94(3), 469–491. doi:
10.1016/j.jfineco.2008.12.009
Dasgupta, A., Prat, A., & Verardo, M. (2011). Institutional trade persistence and long-term equity returns. The
Journal of Finance, 66(2), 635–653. doi:10.1111/j.1540-6261.2010.01644.x
DeLong, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise trader risk in financial markets.
Journal of Political Economy, 98(4), 703–738. doi:10.1086/261703
Demirer, R., & Kutan, A. M. (2006). Does herding behavior exist in Chinese stock markets?. Journal of
International Financial Markets, Institutions and Money, 16(2), 123–142. doi:10.1016/j.intfin.2005.01.002
EU SME Center (2015). Sector report: The construction sector in China. Retrieved from http://www.eusmecentre.
org.cn/report/construction-sector-china.
Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial
Economics, 33(1), 3–56. doi:10.1016/0304-405X(93)90023-5
Fama, E. F., & French, K. R. (2012). Size, value, and momentum in international stock returns. Journal of
Financial Economics, 105(3), 457–472. doi:10.1016/j.jfineco.2012.05.011
Frijns, B., Lai, Q., & Tourani-Rad, A. (2014). Institutional trading and stock returns: Evidence from China. Review
of Pacific Basin Financial Markets and Policies, 17(01), 1450003. doi:10.1142/S0219091514500039
Froot, K. A., Scharfstein, D. S., & Stein, J. C. (1992). Herd on the street: Informational inefficiencies in a market
with short-term speculation. The Journal of Finance, 47(4), 1461–1484.
Gavriilidis, K., Kallinterakis, V., & Ferreira, M. P. L. (2013). Institutional industry herding: Intentional or spuri-
ous?. Journal of International Financial Markets, Institutions and Money, 26, 192–214. doi:10.1016/j.intfin.2013.
05.008
GeR bka, B., & Wohar, M. E. (2013). International herding: Does it differ across sectors?. Journal of International
Financial Markets, Institutions and Money, 23, 55–84. doi:10.1016/j.intfin.2012.09.003
Graham, J. R. (1999). Herding among investment newsletters: Theory and evidence. The Journal of Finance, 54(1),
237–268. doi:10.1111/0022-1082.00103
Grinblatt, M., Titman, S., & Wermers, R. (1995). Momentum investment strategies, portfolio performance, and
herding: A study of mutual fund behavior. The American Economic Review, 85(5), 1088–1105.
Han, L., Zheng, Q., Li, L., & Yin, L. (2015). Do foreign institutional investors stabilize the capital market?.
Economics Letters, 136, 73–75. doi:10.1016/j.econlet.2015.09.008
Hsieh, S. F. (2013). Individual and institutional herding and the impact on stock returns: Evidence from Taiwan
stock market. International Review of Financial Analysis, 29, 175–188. doi:10.1016/j.irfa.2013.01.003
Huang, A. G. (2009). The cross section of cashflow volatility and expected stock returns. Journal of Empirical
Finance, 16(3), 409–429. doi:10.1016/j.jempfin.2009.01.001
Iihara, Y., Kato, H. K., & Tokunaga, T. (2004). The winner–loser effect in Japanese stock returns. Japan and the
World Economy, 16(4), 471–485. doi:10.1016/j.japwor.2003.06.001
Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market
efficiency. The Journal of Finance, 48(1), 65–91. doi:10.1111/j.1540-6261.1993.tb04702.x
Kim, K. A., & Nofsinger, J. R. (2005). Institutional herding, business groups, and economic regimes: Evidence
from Japan. The Journal of Business, 78(1), 213–242. doi:10.1086/426524
Kim, W., & Wei, S. J. (2002). Foreign portfolio investors before and during a crisis. Journal of International
Economics, 56(1), 77–96. doi:10.1016/S0022-1996(01)00109-X
Kremer, S., & Nautz, D. (2013). Causes and consequences of short-term institutional herding. Journal of Banking
& Finance, 37(5), 1676–1686. doi:10.1016/j.jbankfin.2012.12.006
Lakonishok, J., Shleifer, A., & Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of
Financial Economics, 32(1), 23–43. doi:10.1016/0304-405X(92)90023-Q
Lee, C. C., Chen, M. P., & Hsieh, K. M. (2013). Industry herding and market states: Evidence from Chinese stock
markets. Quantitative Finance, 13(7), 1091–1113. doi:10.1080/14697688.2012.740571
Li, X. M. (2017). New evidence on economic policy uncertainty and equity premium. Pacific-Basin Finance
Journal, 46, 41–56. doi:10.1016/j.pacfin.2017.08.005
Li, W., Rhee, G., & Wang, S. S. (2017). Differences in herding: Individual vs. institutional investors. Pacific-Basin
Finance Journal, 45, 174–185. doi:10.1016/j.pacfin.2016.11.005
 THE CHINESE ECONOMY 19

Maug, E., & Naik, N. (1996). Herding and delegated portfolio management. Mimeo, London: London Business
School.
Mei, J., Scheinkman, J., & Xiong, W. (2009). Speculative trading and stock prices: Evidence from Chinese A-B
share premia. Annals of Economics and Finance, 10(2), 225–255.
Newey, W. K., & West, K. D. (1987). Hypothesis testing with efficient method of moments estimation.
International Economic Review, 777–787.
Nofsinger, J. R., & Sias, R. W. (1999). Herding and feedback trading by institutional and individual investors. The
Journal of Finance, 54(6), 2263–2295. doi:10.1111/0022-1082.00188
Petkova, R. (2006). Do the Fama–French factors proxy for innovations in predictive variables?. The Journal of
Finance, 61(2), 581–612. doi:10.1111/j.1540-6261.2006.00849.x
Schuppli, M., & Bohl, M. T. (2010). Do foreign institutional investors destabilize China’s A-share markets?. Journal
of International Financial Markets, Institutions and Money, 20(1), 36–50. doi:10.1016/j.intfin.2009.10.004
Sias, R. W. (2004). Institutional herding. Review of Financial Studies, 17(1), 165–206. doi:10.1093/rfs/hhg035
Su, Z. Q., & Xu, Y. (2019). The information role of comment letters: Evidence from institutional investors’
informed trading. The Chinese Economy, 1–25.
Tan, L., Chiang, T. C., Mason, J. R., & Nelling, E. (2008). Herding behavior in Chinese stock markets: An examin-
ation of A and B shares. Pacific-Basin Finance Journal, 16(1-2), 61–77. doi:10.1016/j.pacfin.2007.04.004
Teh, L. L., & De Bondt, W. F. (1997). Herding behavior and stock returns: An exploratory investigation. Swiss
Journal of Economics and Statistics, 133, 293–324.
Venezia, I., Nashikkar, A., & Shapira, Z. (2011). Firm specific and macro herding by professional and amateur
investors and their effects on market volatility. Journal of Banking & Finance, 35(7), 1599–1609. doi:10.1016/j.
jbankfin.2010.11.015
Voronkova, S., & Bohl, M. T. (2005). Institutional traders’ behavior in an emerging stock market: Empirical evi-
dence on polish pension fund investors. Journal of Business Finance & Accounting, 32(7-8), 1537–1560.
Walter, A., & Moritz Weber, F. (2006). Herding in the German mutual fund industry. European Financial
Management, 12(3), 375–406. doi:10.1111/j.1354-7798.2006.00325.x
Wermers, R. (1999). Mutual fund herding and the impact on stock prices. The Journal of Finance, 54(2), 581–622.
doi:10.1111/0022-1082.00118
Xiong, W., & Yu, J. (2011). The Chinese warrants bubble. American Economic Review, 101(6), 2723–2753. doi:10.
1257/aer.101.6.2723
Yang, J., Chi, J., & Young, M. (2014). Mutual fund investment strategies and preferences: Evidence from China.
The Chinese Economy, 47(1), 5–37. doi:10.2753/CES1097-1475470101
Yao, J., Ma, C., & He, W. P. (2014). Investor herding behaviour of Chinese stock market. International Review of
Economics & Finance, 29, 12–29. doi:10.1016/j.iref.2013.03.002
Yu, L. (2017). Firm Attributes and Momentum Strategies in China. The Chinese Economy, 50(1), 59–77. doi:10.
1080/10971475.2016.1211905
Zheng, D., Li, H., & Chiang, T. C. (2017). Herding within industries: Evidence from Asian stock markets.
International Review of Economics & Finance, 51, 487–509. doi:10.1016/j.iref.2017.07.005
Zheng, D., Li, H., & Zhu, X. (2015). Herding behavior in institutional investors: Evidence from China’s stock mar-
ket. Journal of Multinational Financial Management, 32, 59–76. doi:10.1016/j.mulfin.2015.09.001