A Comparative Analysis Of Herding Of Banking Stocks Between The Mainland And Hongkong Market

With the development of modern society and economy, risk factors continue to emerge on the stock market. As a result, EMH (Efficient Market Hypothesis) faces more challenges due to anomalies such as weekend effect, small firm effect etc. More and more investors find that arbitrage process makes price deviate from the intrinsic value of securities, which is contrary to the principles of finance. The reasons of these anomalies are a lot. The security market is affected by irrational psychological factor. Herding is very common in such stock anomalies, which has a great impact on the development of stock market.No matter in mainland or Hong Kong stock markets, bank stocks have a very important position. Besides, the number of bank stocks cross-list on A-share and H-share is much larger than other sectors. Compared to mature markets such as Hong Kong, Shanghai and Shenzhen stock market is an emerging market as it has a history of only 20 years, and investors are more irrational in such an immature market. Therefore, we believe that it is appropriate to make comparison between the mainland bank stocks and that of Hong Kong market.This paper uses Dt and CSAD as indicators to measure the degree of dispersion and the level of deviation. Based on CH model and CCK model, this paper proposes two measures to verify herding phenomenon, by comparing the regression coefficients of the deviation between the return of individual stock and the market return in bull market from that in bear market. The result is that herding of banking sector is significantly obvious in bull market, while it is not in bear market. Besides, the dispersion degree of bank sector is lower than that of any other sectors.According to the empirical results based on CKK model, herd behavior of banking sector is more concentrated than that of the whole stock market in both bull market and bear market. For the Hong Kong market, herding is not obvious in most cases. At the end of the empirical part, according to the regression analysis, the exchange rate and market return are positively correlated in both mainland and Hong Kong market, and herd behavior of A-share is more significant than that of H-share. It also reflects that investors are more rational in Hong Kong stock market which is a mature financial market, so that there’s less herding.