Investors' Herd Behavior and its Relation with Volatility in the Korean Stock Market (in Korean)

Many of the theoretical studies have tried to explain the return volatility in information-flow paradigm, but this paper considers investors'herd behavior as a source of the return volatility in stock markets. Unlike the existing literature, further, it estimates the herd behavior of individual, foreign, institutional investors and focuses on its relation with return volatility from the behavioral point of view. Collecting daily data of stock price, trading volume, and market capitalization from FnGuide, this paper makes the stocks, sorted by the trading volume, into five equally weighted portfolios and estimates herding parameter derived from the continuous beliefs system for the five portfolios of each investor. Some empirical results show that as the proportion of foreign investor's trade increases, herd behavior appears more strongly, but in the case of individual investor herd behavior is the most strong in 40-60% portfolio. This interesting phenomenon can be interpreted as a weakening of herd behavior due to diversity of individual investor's beliefs at large trading proportion, leading to reduction of market volatility. In conclusion, foreign investor is more likely to herd and destabilize the Korean stock market than individual investor.