 Compass guided: Northbound capital flow and investment clustering in ChinaYunbi An, Zhao Chen, Clement Man Yiu Liu, Qingfu Liu and Chuanjie Wang Journal of International Money and Finance, 2025, vol. 153, issue C Abstract: We study the trading behavior of boundedly rational investors chasing cross-border capital flow in the context of the Shanghai-/Shenzhen-Hong Kong Stock Connect program. The capital flow from Hong Kong to mainland China via this channel, referred to as northbound capital flow (NCF), is widely recognized as smart money in China. We find that mainland Chinese investors exhibit a strong tendency to herd toward stocks with substantial net NCF flows, and investors are especially prone to herd around trade-oriented NCF that pursues short-term gains. We show that the herd behavior is due to enhanced investor sentiment induced by substantial NCF flows. In addition, NCF outflows lead to a more pronounced herding effect, and investment clustering in small-cap stocks is more prominent. Moreover, market panic and the dispersion of stock information mitigate investor herd behavior. Our research provides new insight into the economic consequences of cross-border capital flows in emerging market countries. Keywords: Smart money; Herding; Northbound capital flow; Investor sentiment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:153:y:2025:i:c:s0261560625000403 DOI: 10.1016/j.jimonfin.2025.103305 Access Statistics for this article Journal of International Money and Finance is currently edited by J. R. Lothian More articles in Journal of International Money and Finance from Elsevier |
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