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The effects of national culture and behavioral pitfalls on investors' decision-making: Herding behavior in international stock markets

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  • Chang, Chih-Hsiang
  • Lin, Shih-Jia

Abstract

The purpose of this study is to explore the determinants of investor decision-making in international stock markets. Unlike previous literature, this study provides insight into the effects of national culture and behavioral pitfalls on investors' decision-making processes in international stock markets. Its empirical results provide evidence that herding behaviors occur in Confucian and less sophisticated equity markets. Additionally, it finds that some national culture indexes are closely correlated with the exhibition of herding. Finally, it shows that investors' behavioral pitfalls dominate their herding tendency, as shown in cross-sectional absolute deviations of returns.

Suggested Citation

  • Chang, Chih-Hsiang & Lin, Shih-Jia, 2015. "The effects of national culture and behavioral pitfalls on investors' decision-making: Herding behavior in international stock markets," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 380-392.
    • Handle: RePEc:eee:reveco:v:37:y:2015:i:c:p:380-392
    DOI: 10.1016/j.iref.2014.12.010
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    More about this item

    Keywords

    Herding behavior; National culture; Behavioral pitfalls; International stock markets; Behavioral finance;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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