Individualism, Synchronized Stock Price Movements, and Stock Market Volatility

44 Pages Posted: 18 Feb 2013 Last revised: 11 Nov 2013

Multiple version iconThere are 2 versions of this paper

Date Written: November 7, 2013

Abstract

This paper examines the impact of national culture on herding behaviour across international financial markets. The relation between national culture and investor behaviour, and how it impacts overall market volatility is studied by examining synchronized stock price movements and stock market volatility in 47 countries around the world over the period of January 2003 to May 2012. I find that nations with lower values of individualistic culture are more likely to have a higher number of synchronized stock price movements. Further, the correlation between stock price movements apparently increase stock market volatility. Nations with high individualistic culture have a lower number of synchronized stock price movements and thus have lower levels of stock market volatility. The positive relationship between synchronized stock price movements and stock market volatility is stronger for emerging markets during the financial crisis from June 2007 to December 2008. Rather than due to the different levels of economic development, the empirical results here indicate that a portion of the difference in market level volatility is attributed to the investor bias of different cultures.

Keywords: Stock Market Volatility; Country Risk; National Culture; Financial Crisis; International Financial Markets; Behavioral Finance

JEL Classification: G01, G14, G15, F63

Suggested Citation

Zhan, Feng, Individualism, Synchronized Stock Price Movements, and Stock Market Volatility (November 7, 2013). Available at SSRN: https://ssrn.com/abstract=2220313 or http://dx.doi.org/10.2139/ssrn.2220313

Feng Zhan (Contact Author)

Western University ( email )

1151 Richmond St
London, N6A 3K7
Canada

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