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Herd behaviors in the stock and foreign exchange markets

Author

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  • Kim, Kyungsik
  • Yoon, Seong-Min
  • Kim, Yup

Abstract

The herd behavior of returns for the won–dollar exchange rate and the Korean stock price index (KOSPI) is analyzed in Korean financial markets. It is reported that the probability distribution P(R) of returns R for three types of herding parameter satisfies the power-law behavior P(R)≃R−β with the exponents β=2.2 (the won–dollar exchange rate) and 2.4 (the KOSPI). When the herding parameter h satisfies h⩾2.33, the crash regime in which P(R) increases with the increasing R appears. The active state of the transaction exists to decrease for h>2.33. Especially, we find that the distribution of normalized returns shows a crossover to a Gaussian distribution when the time step Δt=252 is used. Our results will also be compared to the other well-known analyses.

Suggested Citation

  • Kim, Kyungsik & Yoon, Seong-Min & Kim, Yup, 2004. "Herd behaviors in the stock and foreign exchange markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 341(C), pages 526-532.
    • Handle: RePEc:eee:phsmap:v:341:y:2004:i:c:p:526-532
    DOI: 10.1016/j.physa.2004.05.052
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    Cited by:

    1. Monira Essa Aloud, 2020. "The role of attribute selection in Deep ANNs learning framework for high‐frequency financial trading," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 43-54, April.
    2. Firouzi, Shahrokh & Wang, Xiangning, 2019. "A comparative study of exchange rates and order flow based on wavelet transform coherence and cross wavelet transform," Economic Modelling, Elsevier, vol. 82(C), pages 42-56.
    3. Marcin Wk{a}torek & Jaros{l}aw Kwapie'n & Stanis{l}aw Dro.zd.z, 2021. "Financial Return Distributions: Past, Present, and COVID-19," Papers 2107.06659, arXiv.org.
    4. Вороновицкий М.М., 2014. "Агент - Ориентированная Модель Замкнутого Однотоварного Рынка," Журнал Экономика и математические методы (ЭММ), Центральный Экономико-Математический Институт (ЦЭМИ), vol. 50(2), pages 73-87, апрель.
    5. Xolani Sibande & Rangan Gupta & Riza Demirer & Elie Bouri, 2023. "Investor Sentiment and (Anti) Herding in the Currency Market: Evidence from Twitter Feed Data," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 24(1), pages 56-72, January.
    6. Haghani, Milad & Sarvi, Majid, 2017. "Social dynamics in emergency evacuations: Disentangling crowd’s attraction and repulsion effects," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 475(C), pages 24-34.
    7. Anam Yasir & Umar Safdar & Yasir Javaid, 2022. "Herd behaviour in foreign exchange market," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 11(1), pages 1-12, December.

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