Using the CCK Model to Detect Herding in Chinese Equity Indices

Summary

This study describes using the CCK model to identify herding in Chinese equity indices. Herding is associated with constituents moving in the same direction: their return correlations rise while the cross-sectional dispersion of returns falls. The analysis adds the broad A-share market’s daily return to the model to capture market-wide influences. The approach is presented as parameter-free and focused on changes within index constituents, offering a way to inform market timing.

Reported results vary with market direction, index size style, style purity, and industry. The strategy is said to work better during rising markets, particularly for large-cap, style-pure broad indices and large-cap, non-growth industries; growth industries fare less well. The document cites favorable results for the SSE 50 and a financial industry index in rising conditions, but the financial-index win-rate figure is incomplete. These are backtest observations, not evidence of live performance, and the summary gives little detail on sample period, implementation, costs, or risk.

Key ideas

• The CCK model identifies herding when constituent returns move together and cross-sectional dispersion declines.
• The study adds the broad A-share market return to account for market-wide influences.
• Reported strategy performance depends on market trend, index size style, style purity, and industry characteristics.
• The reported results are stronger in rising markets and weaker for growth-oriented industries.
• The summary provides limited backtest detail, and one reported win-rate figure is incomplete.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.