[First; a ranty preamble. Well, it is my blog after all. Confucian, Confucianistic and Confuscianist are terms gaining greater currency in discussions about how things work in this part of the world. These terms are all euphemisms for the same thing i.e. ‘Chinese’ or ‘China-infuenced’. I object to this new usage as it’s at best sloppy and, when used in certain contexts, just plain racist. Perhaps I shouldn’t complain; this is a slightly better rough-guide-handle than one ugly predecessor, the never-never-land of ‘Greater-China’, wherever that was? Harrumph done; let’s get to the research.]
Despite starting with this wonky premise that certain markets are ‘Confucian’ the paper highlighted today does have some merit in that it provides a useful analysis of ‘herding’ patterns in the China domestic A-share stock-market.
Previous studies have shown little signs of this in the U.S. and Hong Kong [Because Hong Kong is not part of China? 🙂 Ed.] and only a slight tendency in Japan [Because it’s only slightly Confucian? Ed.]. In Korea and Taiwan though the pattern is regularly observed.
In China the authors of the paper, Munkh-Ulzii Batmunkh (et.al.), discover the phenomena is both present and asymmetrical in that it seems to occur more in up markets, in their 15-year observation period, than in down ones.
Value investors learn early in their careers when markets are hot they do poorly as its usually a narrow group of stocks that make the running. On the flip-side they gain when the correction comes (it always comes) and yesterday’s thundering herd develops into a stampede for an exit.
I was left wondering at the end of the read though if this process, here observed in China’s domestic A-share markets and fingered by implication as a ‘Confucianist’ market trait, is new-news or just clarification that a phenomena observed in many other markets is present in China too?
Whatever; you can access the paper in full via this link Confucius and Herding
Happy Sunday.