Institutional Industry Herding in China

Lei Zhu, Huimin Li and Dazhi Zheng

Chinese Economy, 2020, vol. 53, issue 3, 246-264

Abstract: This paper examines the effect of institutional herding on future stock returns in China A-share market at both the market and industry level from 2003 to 2012. Using a unique institutional holding database, we test 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, manufacturing 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.

Date: 2020
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DOI: 10.1080/10971475.2020.1720963

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