Boya Century Publishing

Set Homepage | Favorite
Article Details


Article Title : Causes of Herd Behaviour in Chinese ST Stocks
Author(s) : Jiayu Lyu
Corresponding Author : Jiayu Lyu
Keywords : Herd Behaviour; Special Treatment; Chinese Stock Market.

Stocks are designated as special treatment (ST) stocks by the Shanghai (SH) and Shenzhen (SZ) Stock Exchange when companies face abnormal problems in their finances and operations (According to rules governing the listing of stocks (Shanghai Stock Exchange, 2019, 69-75; Shenzhen Stock Exchange, 2018, 67-74), stocks with delisting risk are marked as “*ST”, while those that face other risks are marked as “ST”. Generally, *ST stocks have the following characteristics: (1) Two consecutive years of negative audited profit; (2) There are obvious accounting errors or cases of fraud recorded in the financial statements, and they have not been corrected within a certain period. ST stocks have the following characteristic: The company’s production and business activities are seriously affected and not likely to return to normal within three months. Since the distinction between “ST” and “*ST” is not the focus of this paper, “ST” represents both “ST” and “*ST”.). The Chinese ST stock market experiences frequent volatility and speculation despite investors being forewarned about these stocks. Many cases of investor herding behaviour have been documented and this paper discusses how information uncertainty and behavioural biases influence herding, as well as outlining how herding occurs in Chinese ST stocks. In the case of ST Xinwei, the paper finds that investors tend to believe others are better informed and so they follow others’ decisions. In the case of ST Changsheng, the paper finds that behavioural biases such as the hot hand fallacy drives investors to speculate. This paper outlines implications for both Chinese policymakers and individual investors.