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An empirical analysis of herd behavior in global stock markets

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  • Chiang, Thomas C.
  • Zheng, Dazhi

Abstract

This paper examines herding behavior in global markets. By applying daily data for 18 countries from May 25, 1988, through April 24, 2009, we find evidence of herding in advanced stock markets (except the US) and in Asian markets. No evidence of herding is found in Latin American markets. Evidence suggests that stock return dispersions in the US play a significant role in explaining the non-US market's herding activity. With the exceptions of the US and Latin American markets, herding is present in both up and down markets, although herding asymmetry is more profound in Asian markets during rising markets. Evidence suggests that crisis triggers herding activity in the crisis country of origin and then produces a contagion effect, which spreads the crisis to neighboring countries. During crisis periods, we find supportive evidence for herding formation in the US and Latin American markets.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 34 (2010)
Issue (Month): 8 (August)
Pages: 1911-1921

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Handle: RePEc:eee:jbfina:v:34:y:2010:i:8:p:1911-1921

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Herding behavior Cross-sectional stock dispersion Financial crisis;

References

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Citations

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Cited by:
  1. Klein, Arne C., 2013. "Time-variations in herding behavior: Evidence from a Markov switching SUR model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 291-304.
  2. de Haan, Leo & Kakes, Jan, 2011. "Momentum or contrarian investment strategies: Evidence from Dutch institutional investors," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2245-2251, September.
  3. Hankir, Yassin & Rauch, Christian & Umber, Marc P., 2011. "Bank M&A: A market power story?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2341-2354, September.
  4. Itzhak Venezia & Amrut Nashikkar & Zur Shapira, 2011. "Firm specific and macro herding by professional and amateur investors and their effects on market volatility," Discussion Paper Series dp586, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  5. Li, Huimin & Zheng, Dazhi & Chen, Jun, 2014. "Effectiveness, cause and impact of price limit—Evidence from China's cross-listed stocks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 217-241.
  6. Christopher Boortz & Stephanie Kremer & Simon Jurkatis & Dieter Nautz, 2014. "Information Risk, Market Stress and Institutional Herding in Financial Markets: New Evidence Through the Lens of a Simulated Model," SFB 649 Discussion Papers SFB649DP2014-029, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  7. Christopher Boortz & Simon Jurkatis & Stephanie Kremer & Dieter Nautz, 2013. "Institutional Herding in Financial Markets: New Evidence through the Lens of a Simulated Model," Discussion Papers of DIW Berlin 1336, DIW Berlin, German Institute for Economic Research.
  8. Poon, Ser-Huang & Rockinger, Michael & Stathopoulos, Konstantinos, 2013. "Market liquidity and institutional trading during the 2007–8 financial crisis," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 86-97.
  9. Changki Kim & Yangho Choi & Woojoo Lee & Jae Youn Ahn, 2013. "Analyzing Herd Behavior in Global Stock Markets: An Intercontinental Comparison," Papers 1308.3966, arXiv.org.
  10. Gębka, Bartosz & Wohar, Mark E., 2013. "International herding: Does it differ across sectors?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 23(C), pages 55-84.
  11. Simon Jurkatis & Stephanie Kremer & Dieter Nautz, 2012. "Correlated Trades and Herd Behavior in the Stock Market," SFB 649 Discussion Papers SFB649DP2012-035, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  12. Kremer, Stephanie & Nautz, Dieter, 2013. "Causes and consequences of short-term institutional herding," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1676-1686.
  13. Demirer, Rıza & Kutan, Ali M. & Zhang, Huacheng, 2014. "Do ADR investors herd?: Evidence from advanced and emerging markets," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 138-148.
  14. Christopher Boortz & Simon Jurkatis & Stephanie Kremer & Dieter Nautz, 2013. "Herding in financial markets: Bridging the gap between theory and evidence," SFB 649 Discussion Papers SFB649DP2013-036, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  15. Yao, Juan & Ma, Chuanchan & He, William Peng, 2014. "Investor herding behaviour of Chinese stock market," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 12-29.
  16. Economou, Fotini & Kostakis, Alexandros & Philippas, Nikolaos, 2011. "Cross-country effects in herding behaviour: Evidence from four south European markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 443-460, July.
  17. Demirer, Riza, 2013. "Can advanced markets help diversify risks in frontier stock markets? Evidence from Gulf Arab stock markets," Research in International Business and Finance, Elsevier, vol. 29(C), pages 77-98.
  18. Venezia, Itzhak & Nashikkar, Amrut & Shapira, Zur, 2011. "Firm specific and macro herding by professional and amateur investors and their effects on market volatility," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1599-1609, July.

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