The Response of Dynamic Herd Behavior to Domestic and U.S. Market Factors: Evidence from the Greater China Stock Markets |
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Authors: | Wan-Ru Yang Yi-Ling Chen |
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Institution: | 1. Department of Finance, National University of Kaohsiung, Kaohsiung, Taiwanwryang@nuk.edu.tw;3. Department of Asia Pacific Industrial and Business Management, National University of Kaohsiung, Kaohsiung, Taiwan |
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Abstract: | ABSTRACTWe investigate the dynamic reaction of stock market herding in China, Hong Kong, and Taiwan to unexpected shocks from domestic and U.S. market factors. In China and Taiwan, herding is more pronounced, and the investors tend to herd with the rising stock market returns. Overconfident investors will herd on the subsequent trading days under market stress. Compared with the response to the domestic market factors, the responses of herding in the Greater China stock market to the U.S. market factors are weaker. After the 2007–8 financial crisis, the U.S. market factors highly explain the forecast error variance of herding in the Shanghai A-share and Taiwan markets. |
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Keywords: | financial crisis herding Kalman-filter-based model overconfidence VAR model |
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