Herding on lottery-type stocks: evidence from the Chinese stock market

ABSTRACT

Previous studies have provided evidence that investors have gambling propensity in the stock market and exhibit a preference for lottery-type stocks. In this study, we use high total skewness and high maximum daily return (MAX) to measure lottery-type stocks and examine whether investors do exhibit distinct herding pattern in these stock types. Empirical results show that investors display stronger herding among lottery-type stocks, thereby indicating that such stocks induce correlated behaviour with the investors. In addition, we find that stocks with the highest skewness exhibit stronger herding under upmarkets, whereas stocks with the lowest skewness display stronger herding under downmarkets. Regarding the highest MAX portfolio, no significant herding asymmetry is seen between upmarket and downmarket. The results reported in this article demonstrate that comovement in stock returns may be partly attributed to the nonstandard preferences of investors in the stock market.

KEYWORDS:

• Herding behaviour
• lottery-type stocks
• skewness
• MAX

JEL CLASSIFICATION:

• G15
• G14

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Stocks with high total skewness are attractive to investors because they have a small probability to obtain a large gain.

² Unreported results show that we obtain similar results in this article when sorting stocks by MAX(1), MAX(2), MAX(4), MAX(5).

³ Our sample includes only A-share markets, not B-share markets.

Additional information

Funding

This work is supported by National Natural Science Foundation of China [NSFC Nos. 71231005, 71671076]