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Stock price synchronicity and stock price crash risk: Based on the mediating effect of herding behavior of QFII

Yonghong Jin (East China University of Science and Technology, Shanghai, China)
Mengya Yan (East China University of Science and Technology, Shanghai, China)
Yuqin Xi (Department of Human Resource, Shanghai University of International Business and Economics Ringgold Standard Institution, Shanghai, China)
Chunmei Liu (East China University of Science and Technology, Shanghai, China)

China Finance Review International

ISSN: 2044-1398

Article publication date: 15 August 2016

1571

Abstract

Purpose

The purpose of this paper is to empirically analyze the effects of stock price synchronicity and herding behavior of qualified foreign institutional investors (QFII) on stock price crash risk, especially the mediating effect of herding behavior of QFII on the relation of stock price synchronicity and stock price crash risk.

Design/methodology/approach

Taking China’s A-share listed companies from 2005 to 2014 and QFII holding shares data as the research sample, this study calculates herding effect index, sock price synchronicity index and stock price crash risk index, and perform linear regression.

Findings

This study concludes that, either herding behavior of QFII or the stock price synchronicity can increase the stock price crash risk. Further study reveals that, the herding behavior of QFII also improves the effect of stock price synchronicity on stock price crash risk. Namely, herding behavior of QFII acts as the mediating role between stock price synchronicity and stock price crash risk.

Originality/value

This study empirically analyzes and verifies the mediating roles of herding behavior of QFII in affecting the relation of sock price synchronicity and stock price crash risk for the first time. The findings of this study contribute to the study of the role of QFII in stabilizing Chinese security market.

Keywords

Acknowledgements

JEL Classification — G15, G23

This paper is supported by Shanghai Philosophy and Social Science Foundation (No. 2014BJB005), and the Fundamental Research Funds for the Central Universities by the Ministry of Education of China and liberal arts foster fund of East China University of Science and Technology (No. 222201422030).

Citation

Jin, Y., Yan, M., Xi, Y. and Liu, C. (2016), "Stock price synchronicity and stock price crash risk: Based on the mediating effect of herding behavior of QFII", China Finance Review International, Vol. 6 No. 3, pp. 230-244. https://doi.org/10.1108/CFRI-05-2015-0047

Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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