Detecting Herding in Confucian Stock Markets An Event Approach

Purpose: The purpose of this study is to investigate the insights of herding behavior among Confucian markets. Methodology and data: The foundation of the empirical models of this study is based on return dispersion methods developed by Chang, Cheng, and Khorana (2000), Tan, Chiang, Mason, and Nelling (2008), and others. This study investigates herding behavior by using index returns and stock return data of seven Asian economies (mainland China, Hong Kong, Japan, South Korea, Taiwan, Singapore, and Vietnam) that practice Confucian culture. In addition, we evaluated the Chinese New Year effect on herding tendency. The sample data time range is between January 01, 1999 to January 01, 2015. The main source of our sample data is the Datastream database. Findings: This study demonstrates significant herding behavior not only in general market condition, but also in rising and falling markets. Furthermore, it identified significant effects from the Chinese New Year on herding tendency. Contribution: This study contributes to the literature by providing evidence of herding behavior in markets that practice Confucian culture. We find that Confucian culture has a significant positive effect on the formation of herding behavior among investors in equity markets. Our findings indicate that there is a linkage between herding behavior and Confucian culture.