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The extension of a continuous beliefs system and analyzing herd behavior in stock markets (in Korean)

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  • Beum-Jo Park

    (Department of Economics, Dankook University)

Abstract

Although many theoretical studies have tried to explain the volatility in financial markets using models of herd behavior, there have been few empirical studies on dynamic herding due to the technical difficulty of detecting herd behavior with time-series data. Thus, this paper theoretically extends a continuous beliefs system belonging to an agent based economic model by introducing a term representing agents'mutual dependence into each agent's utility function and derives a SV(stochastic volatility)-type econometric model. From this model the time-varying herding parameters are efficiently estimated by a Markov chain Monte Carlo method. Using monthly data of KOSPI and DOW, this paper provides some empirical evidences for stronger herding in the Korean stock market than in the U.S. stock market, and further stronger herding after the global financial crisis than before it. More interesting finding is that time-varying herd behavior has weak autocorrelation and the global financial crisis may increase its volatility significantly.

Suggested Citation

  • Beum-Jo Park, 2011. "The extension of a continuous beliefs system and analyzing herd behavior in stock markets (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 17(2), pages 27-55, June.
    • Handle: RePEc:bok:journl:v:17:y:2011:i:2:p:27-55
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    More about this item

    Keywords

    Continuous Beliefs System; Global Financial Crisis; Herd behavior; Markov chain Monte Carlo(MCMC) algorithm; Time-varying Herding Parameter.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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