The Role of Volatility in Mediating the Impact of Reserve Requirement Ratio on Herding in Chinese Shanghai Stock Exchange

This study examines the intricate relationship between the reserve requirement ratio, herding behaviour, and mediating role of volatility within the Chinese Shanghai Stock Exchange. Furthermore, this study investigates the mediating effect of market volatility using both realised volatility and the Parkinson estimator. A notable finding of this study is the identification of full mediation by volatility, which emphasises the critical role of market volatility in amplifying the effects of the reserve requirement ratio on investor behaviour. The Baron and Kenny mediation model provides a structured framework for comprehensively analysing the mediation process. The theoretical implications encompass contributions to information-based herding theory and the Efficient Market Hypothesis, enriching our understanding of market dynamics. This study has practical implications for market participants, policymakers, and regulators, highlighting the need for a holistic approach to monetary policy that considers its potential impact on market behaviour through volatility.