An Examination of Herd Behavior in Equity Markets: An International Perspective

Journal of Banking and Finance

Posted: 29 Sep 1999

See all articles by Ajay Khorana

Ajay Khorana

Georgia Institute of Technology - Finance Area

Eric C. Chang

University of Hong Kong - School of Business

Joseph W. Cheng

The Chinese University of Hong Kong (CUHK) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Abstract

We examine the investment behavior of market participants within different international markets (i.e., U.S., Hong Kong, Japan, South Korea, and Taiwan), specifically with regard to their tendency to exhibit herd behavior. We find no evidence of herding on the part of market participants in the U.S. and Hong Kong and partial evidence of herding in Japan. However, for South Korea and Taiwan, the two emerging markets in our sample, we document significant evidence of herding. The results are robust across various size-based portfolios and over time. Furthermore, macroeconomic information rather than firm-specific information tends to have a more significant impact on investor behavior in markets which exhibit herding. In all five markets, the rate of increase in security return dispersion as a function of the aggregate market return is higher in up market, relative to down market days. This is consistent with the directional asymmetry documented by McQueen, Pinegar, and Thorley (1996).

JEL Classification: G12, G14

Suggested Citation

Khorana, Ajay and Chang, Eric Chieh C. and Cheng, Wui Wing Joseph, An Examination of Herd Behavior in Equity Markets: An International Perspective. Journal of Banking and Finance. Available at SSRN: https://ssrn.com/abstract=178911

Ajay Khorana (Contact Author)

Georgia Institute of Technology - Finance Area ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States
404-894-5110 (Phone)
404-894-6030 (Fax)

Eric Chieh C. Chang

University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Wui Wing Joseph Cheng

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong

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