Empirical analysis of Chinese stock market behavior: Evidence from dynamic correlations, herding behavior, and speed of adjustment

In its rapid transition to a modern economy, China is undergoing dynamic changes in all of its business sectors and industries, a situation that presents features unique to Chinese culture and China's economy. This dissertation focuses on several issues related to the Chinese stock market, and these issues are separated into the following three essays.; Essay one is titled as "Dynamic Correlation Analysis of Chinese Stock". This essay examines A-share and B-share market segmentation conditions by employing a dynamic multivariate GARCH model to analyze daily stock-return data for the period 1996 through 2003. Statistics show that stock returns in both A and B shares are positively correlated with the daily change in trading volume or abnormal volume. The evidence reveals that the correlation coefficients between A-share and B-share stock returns are time-varying.; Essay two is titled as "Is There Herding Behavior in Chinese Stock Markets? An Examination of Chinese A and B Shares". It examines whether herding behavior exists in Chinese A- and B-share markets. By applying the methodology proposed by Chang, Cheng, and Khorana (2000) to examine Chinese stock data, we provide evidence that shows there is herding behavior in both the Shanghai and Shenzhen A-share markets. However, no supportive evidence for herding behavior is found in either B market. Volatility seems to have more explanatory power than volume in explaining herding behavior.; Essay three is titled as "Empirical Analysis of the Speed of Adjustment to Information: Evidence from Chinese Stock Markets". It studies investors' behavior characterized by different degrees of sophistication involved in Chinese stock markets. By employing a VAR model to examine different speeds of adjustment in response to common information between Chinese A- and B-share markets, we find evidence that domestic investors who mainly invest in A shares adjust to information faster than foreign investors, who can trade only in B shares. We find evidence that stocks with higher information flows and/or with more prominent status adjust to information faster.