Spillover and Profitability of Intraday Herding on Cross-listed Stocks

Abstract

Companies are cross-listed on multiple exchanges in different countries to take advantage of different market features. Due to difference in time zones, it is normally quite impossible to take advantage of instantaneous information spillover from market to market to generate abnormal return. Situations can be different if the cross-listed firms are traded in markets within the same country and in the same time zone, but with different legislative regimes and levels of sophistication. Focusing on investors’ herd behavior and using hourly data, this paper finds evidence of cross market information spillover in herding formation and abnormal returns in cross-listed stocks in China's Shanghai, Shenzhen and Hong Kong markets. More importantly, we find that investors can make excess returns upon observing herding by buying and holding Hong Kong’s small and median stocks in industrials sector cross-listed in Shenzhen market especially in the morning and the end of the trading day.

Keywords: Herding; Cross-listing; A-shares; H-shares; Chinese stock markets; Hong Kong stock market

JEL Classification: C32, G14, G15