A comparative study of herd spillovers from the United States and China to international equity markets

Purpose This paper compares and discusses the leading economic roles of China and the USA from a different perspective, that is, in terms of herd spillover to 32 international stock markets. Design/methodology/approach We expand the herding spillover models of Gebka and Wohar (2013) and Lai and Zhang (2020) to encompass all types of herd spillovers, including severe, moderate and anti-herd effects. Findings Our research provides a more precise basis for understanding herd spillover effects in global equity markets. During tranquil periods, the trading patterns of Chinese stocks predominate over those of other regions, whereas the influence of the USA appears less significant. Nonetheless, more substantial evidence of the US market is observed during economic downturns. Throughout the financial crisis, investors in other countries tend to follow their respective trading behaviors in both nations as market uncertainty escalates. In addition, prior findings on herd spillover are underestimated because the model lacks an absolute foreign market return. A total of 76 cases of herd spillover is reported in this study. If severe herd spillover is neglected, we will underestimate it by 35.53%. Research limitations/implications Although beyond the scope of the present study, examining herd spillovers across different investor types as well as distinguishing between intentional and unintentional forms of herding spillover would be of considerable interest. Such analyses could further enhance our understanding of common trading behaviors across global financial markets. We leave these issues for future research. Practical implications These findings suggest that the advantages of international diversification through investments in the USA and China may sometimes be overstated. Additionally, regulators should maintain vigilance in supervising cross-border behavioral channels to ensure market stability. Originality/value We compare and discuss the foremost economic influences of the USA and China on trading behaviors across 32 countries worldwide. Our study is extensive in comparison to other research that concentrates on specific countries or regions. Individual stock data in this paper surpass the industrial index in capturing return dispersion, thereby enabling a more precise inference of herd behavior. In addition to moderate herd spillover, which has been the primary focus of previous research, we also examine severe and anti-herd spillovers to provide a comprehensive understanding of the overall effect.