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Decomposing the Household Herding Behavior in Stock Investment: The Case of China

Author

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  • Yung-Ching Tseng

    (Department of Civic Education and Leadership, National Taiwan Normal University, Taipei 106, Taiwan)

  • I.-Fan Hsiao

    (Department of Banking and Finance, Tamkang University, New Taipei City 251, Taiwan)

  • Guo-Chen Wang

    (Chung-Hua Institution for Economic Research, Taipei 10672, Taiwan)

Abstract

Financial studies on the herding effect have been very popular for decades, as detecting herding behavior helps to explain price deviations and market inefficiencies. However, studying the herding effect as a single influencing factor is believed to be insufficient to explain the changes in investment behavior, as the herding effect itself may be caused by other influencing factors. In other words, the issue must be studied alongside other factors. In this study, we adopt the quantile regression model to comprehensively understand the herding effect’s influence on household investment in China, and the empirical results indicate that herding behavior leads to different investment outcomes for households in different scenarios. In this analysis, we consider a variety of household characteristics, such as income level and risk tolerance, to provide a nuanced understanding of investment behavior. Additionally, in this study, we explore the interaction between herding behavior and macroeconomic variables. Nevertheless, the results suggest that, if herding behavior can be reduced by the head of the household, profitability can be increased, or at the very least, losses can be reduced.

Suggested Citation

  • Yung-Ching Tseng & I.-Fan Hsiao & Guo-Chen Wang, 2025. "Decomposing the Household Herding Behavior in Stock Investment: The Case of China," Econometrics, MDPI, vol. 13(2), pages 1-24, May.
    • Handle: RePEc:gam:jecnmx:v:13:y:2025:i:2:p:21-:d:1653640
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    References listed on IDEAS

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    4. Talpsepp, Tõnn & Tänav, Anne-Liis, 2021. "Do gender, age and education affect herding in the real estate market?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
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