Exploring herding behavior in an innovative-oriented stock market: evidence from ChiNext

We adopt the cross-sectional absolute deviation model (CSAD) to test the herding behavior of ChiNext, a decade-old NASDAQ-style stock market in China, based on its stocks from 2015-2019. Our findings show that the herding behavior is prevalent, implying that such behavior is widespread in a relatively new stock market themed with growth-oriented innovative enterprises and dominated by individual investors instead of institutional investors. Moreover, we find that herding tends to be more severe during the periods of falling market than rising market. We explain that several distinct attributes of the individual investors cause them to sell during the falling market, an act contrary to the standard account of the “disposition effect of holding the losers” in behavioral finance. We contribute to the herding behavior literature for a relatively new innovative-oriented stock market as well as our understanding of the investors’ circumstances, which may disprove the often-quoted disposition effect.