Individualism, Synchronized Stock Price Movements, and Stock Market Volatility
44 Pages Posted: 18 Feb 2013 Last revised: 11 Nov 2013
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Individualism, Synchronized Stock Price Movements, and Stock Market Volatility
Individualism, Synchronized Stock Price Movements, and Stock Market Volatility
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: Suggested Citation
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