ISSN: 2225-8329
Open access
Purpose: This study challenges the conventional view of economic policy uncertainty (EPU) as a uniformly destabilizing force. It investigates the asymmetric effects of EPU on herding behavior across China's three major stock boards—the Main Board, ChiNext, and STAR Market—to determine whether it acts as a stabilizing mechanism or a speculative catalyst in different market contexts. Design/methodology/approach: This study employs panel regression analysis on monthly data from January 2011 to December 2023 for the Main Board, ChiNext and STAR Market. The empirical strategy examines the heterogeneous effects of the Chinese EPU index on herding across the three boards. The robustness of the baseline findings is verified through a dummy variable approach and a two-stage least squares (2SLS) estimation that addresses endogeneity. Findings: The results robustly support the core thesis of asymmetric effects. EPU significantly suppresses herding in the Main Board and ChiNext, consistent with a "stabilizing" role. In stark contrast, EPU exacerbates herding on the STAR Market. Crucially, this effect is driven specifically by a significant increase in buy-side herding, confirming its role as a catalyst for speculative purchasing. Research limitations/implications: A key limitation is the current inability to quantitatively distinguish between "good" and "bad" EPU, as existing indices capture only the magnitude, not the qualitative nature, of policy uncertainty. Future research could leverage artificial intelligence and natural language processing to classify policy, enabling a more precise measurement of its asymmetric impacts. Practical implications: Regulators should adopt market-tailored approaches: maintaining stability-enhancing transparency for the Main Board and ChiNext, while implementing targeted oversight on speculative trading in the STAR Market to curb the herding amplified by policy uncertainty. Originality/value: This study addresses a notable gap in the literature by systematically examining the impact of economic policy uncertainty (EPU) on herding behavior—a relationship that has received limited attention, particularly from a heterogeneous market perspective. It offers novel insights by revealing the asymmetric effects of EPU across China's three major boards, thereby enriching our understanding of how institutional context and market microstructure shape divergent investor responses to policy shocks.
Arjoon, V., & Bhatnagar, C. S. (2017). Dynamic herding analysis in a frontier market. Research in International Business and Finance, 42, 496–508. https://doi.org/10.1016/j.ribaf.2017.01.006
Babalos, V., Stavroyiannis, S., & Gupta, R. (2015). Do commodity investors herd? Evidence from a time-varying stochastic volatility model. Resources Policy, 46, 281–287. https://doi.org/10.1016/j.resourpol.2015.10.011
Balcilar, M., & Demirer, R. (2015). Effect of Global Shocks and Volatility on Herd Behavior in an Emerging Market: Evidence from Borsa Istanbul. Emerging Markets Finance and Trade, 51(1), 140–159. https://doi.org/10.1080/1540496X.2015.1011520
Ben L., Jin X., & Feng Y. (2006). Empirical study on herd behavior in the Shanghai stock market. Management Revie, 2, 10-14+63.
Bonaime, A., Gulen, H., & Ion, M. (2018). Does policy uncertainty affect mergers and acquisitions? Journal of Financial Economics, 129(3), 531–558. https://doi.org/10.1016/j.jfineco.2018.05.007
Chang, E. C., Cheng, J. W., & Khorana, A. (2000). An examination of herd behavior in equity markets: An international perspective. Journal of Banking & Finance, 24(10), 1651–1679. https://doi.org/10.1016/S0378-4266(99)00096-5
Costa, F., Fortuna, N., & Lobão, J. (2024). Herding states and stock market returns. Research in International Business and Finance, 68, 102163. https://doi.org/10.1016/j.ribaf.2023.102163
Demirer, R., & Kutan, A. M. (2006). Does herding behavior exist in Chinese stock markets? Journal of International Financial Markets, Institutions and Money, 16(2), 123–142. https://doi.org/10.1016/j.intfin.2005.01.002
Deng, X., Hung, S., & Qiao, Z. (2018). Mutual fund herding and stock price crashes. Journal of Banking & Finance, 94, 166–184. https://doi.org/10.1016/j.jbankfin.2018.07.014
Frijns, B., & Huynh, T. D. (2018). Herding in analysts’ recommendations: The role of media. Journal of Banking & Finance, 91, 1–18. https://doi.org/10.1016/j.jbankfin.2018.03.010
Guan, F., Xu, Y., & He, K. (2024). The role of analysts in IPO market-based pricing: Evidence from STAR Market companies. Accounting and Economics Research, 38(2), 47–70. https://doi.org/10.16314/j.cnki.31-2074/f.20240703.001
Hsieh, S.-F. (2013). Individual and institutional herding and the impact on stock returns: Evidence from Taiwan stock market. International Review of Financial Analysis, 29, 175–188. https://doi.org/10.1016/j.irfa.2013.01.003
Hsieh, S.-F., Chan, C.-Y., and Wang, M.-C. (2020). Retail investor attention and herding behavior. Journal of Empirical Finance, 59, 109–132.
Hu, G. (2024). How do typical market-rescue policies play out? Stock Market Trend Analysis Weekly, (03), 18–19.
Huang, Y., and Luk, P. (2020). Measuring economic policy uncertainty in China. China Economic Review, 59, 101367.
Kabir, M., & Shakur, S. (2018). Regime-dependent herding behavior in Asian and Latin American stock markets. Pacific-Basin Finance Journal, 47, 60–78. https://doi.org/10.1016/j.pacfin.2017.12.002
Kameda, T., & Tamura, R. (2007). ‘To eat or not to be eaten?’ Collective risk-monitoring in groups. Journal of Experimental Social Psychology, 43(2), 168–179. https://doi.org/10.1016/j.jesp.2006.02.003
Lakonishok, J., Shleifer, A., and Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of Financial Economics, 32(1), 23–43.
Li T. (2006). Social interaction and investment choices. Economic Research, 8, 45–57.
Li, X., & Qiu, M. (2020). The Joint Effects of Economic Policy Uncertainty and Firm Characteristics on Capital Structure: Evidence From US Firms (SSRN Scholarly Paper 3703339). https://doi.org/10.2139/ssrn.3703339
Lin, M.-C. (2018). The impact of aggregate uncertainty on herding in analysts’ stock recommendations. International Review of Financial Analysis, 57(C), 90–105.
Nath, H. B., & Brooks, R. D. (2020). Investor-herding and risk-profiles: A State-Space model-based assessment. Pacific-Basin Finance Journal, 62, 101383. https://doi.org/10.1016/j.pacfin.2020.101383
Ng, S.-H., Zhuang, Z., Toh, M.-Y., Ong, T.-S., & Teh, B.-H. (2022). Exploring herding behavior in an innovative-oriented stock market: Evidence from ChiNext. Journal of Applied Economics, 25(1), 523–542. https://doi.org/10.1080/15140326.2022.2050992
Nie, L., & Shi, K. (2020). Recent developments in research on forward guidance of monetary policy. Financial Review, 12(4), 112–122.
Peng, L., & Xiong, W. (2006). Investor attention, overconfidence and category learning. Journal of Financial Economics, 80(3), 563–602. https://doi.org/10.1016/j.jfineco.2005.05.003
People’s Bank of China. (2020, November 26). Monetary policy implementation report for the third quarter of 2020 [Report]. http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4133903/2020112615473038246.pdf
Pool, V. K., Stoffman, N., & Yonker, S. E. (2013). The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolios (SSRN Scholarly Paper 2093159). https://doi.org/10.2139/ssrn.2093159
Qiao, Z., Chiang, T. C., & Tan, L. (2014). Empirical Investigation of the Causal Relationships Among Herding, Stock Market Returns, and Illiquidity: Evidence from Major Asian Markets. Review of Pacific Basin Financial Markets and Policies, 17(03), 1450018. https://doi.org/10.1142/S0219091514500180
Quiamzade, A., & L’Huillier, J.-P. (2009). Herding by attribution of privileged information. Journal of Behavioral Decision Making, 22(1), 1–19. https://doi.org/10.1002/bdm.608
Schmeling, M. (2009). Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408. https://doi.org/10.1016/j.jempfin.2009.01.002
Sun G. (2024). Research on the impact of economic policy uncertainty on liquidity mismatches in Chinese banks. Technology Economics and Management Research, 2, 101–109.
Tao Y., Liu Y., & Peng L. (2015). Research on herd behavior of Chinese securities investment funds and its influencing factors. Journal of Beijing University of Posts and Telecommunications (Social Science Edition), 17(5), 60–67.
Veldkamp, L. L. (2006). Media Frenzies in Markets for Financial Information. American Economic Review, 96(3), 577–601. https://doi.org/10.1257/aer.96.3.577
Vlastakis, N., and Markellos, R. N. (2012). Information demand and stock market volatility. Journal of Banking and Finance, 36(6), 1808–1821.
Wang, Z., Yang, G., & Xiong, H. (2022). The source of innovation premium in China’s stock market: High risk or undervaluation? Investment Research, 41(3), 60–84.
Wermers, R. (1999). Mutual Fund Herding and the Impact on Stock Prices. The Journal of Finance, 54(2), 581–622. https://doi.org/10.1111/0022-1082.00118
Wooldridge, J. M. (2016). Introductory Econometrics: A Modern Approach. Cengage Learning.
Xue, W., He, Z., & Hu, Y. (2023). The destabilizing effect of mutual fund herding: Evidence from China. International Review of Financial Analysis, 88, 102611. https://doi.org/10.1016/j.irfa.2023.102611
Yao, J., Ma, C., & He, W. P. (2014). Investor herding behaviour of Chinese stock market. International Review of Economics & Finance, 29, 12–29. https://doi.org/10.1016/j.iref.2013.03.002
Zhang, G., Han, J., Pan, Z., & Huang, H. (2015). Economic policy uncertainty and capital structure choice: Evidence from China. Economic Systems, 39(3), 439–457. https://doi.org/10.1016/j.ecosys.2015.06.003
Zhang, H., & Chen, C. (2023). The stabilizing effect of the “national team” stock-picking strategy on the stock market: Evidence from individual stocks. Management Science, 36(1), 147–162.
Zhang, Z., & Zhang, Y. (2024). Can “hard tech” forge new productive forces and generate a STAR Market premium? Evidence from STAR Market-listed companies. Social Sciences, (07), 128–143, 72. https://doi.org/10.13644/j.cnki.cn31-1112.2024.07.014
Zheng, G., Liu, L., & Ma, X. (2025). The impact of listing standard selection on IPO approval for STAR Market firms. Management World, 41(3), 189–206. https://doi.org/10.19744/j.cnki.11-1235/f.2025.0041
Zheng, Y., & Zhu, X. (2023). Strategic transformation, characteristic evolution, and forward-looking reflections on Chinese-style economic modernization: A textual analysis based on national five-year plans. Modern Economic Research, (10), 14–22. https://doi.org/10.13891/j.cnki.mer.2023.10.002
Zhou, R. T., & Lai, R. N. (2009). Herding and information based trading. Journal of Empirical Finance, 16(3), 388–393. https://doi.org/10.1016/j.jempfin.2009.01.004
Wei, L., & Ahmad, Z. (2026). Good EPU or Bad EPU? Asymmetric Effects on Herding Across China’s Main, ChiNext, and STAR Markets. International Journal of Academic Research in Accounting, Finance and Management Sciences, 16(1), 544–559.
Copyright: © 2026 The Author(s)
Published by HRMARS (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode