Commenced in January 2007
Frequency: Monthly
Edition: International
Paper Count: 30127
Stock Characteristics and Herding Formation: Evidence from the United States Equity Market

Authors: Chih-Hsiang Chang, Fang-Jyun Su

Abstract:

This paper explores whether stock characteristics influence the herding formation among investors in the US equity market. To extend the research scope of the existing literature, this paper further examines the role that stock risk characteristics play in the US equity market, and the way they influence investors’ decision-making. First, empirical results show that whether general stocks or high-risk stocks, there are no herding behaviors among the investors in the US equity market during the whole research period or during four great events. Moreover, stock characteristics have great influence on investors’ trading decisions. Finally, there is a bidirectional lead-lag relationship of the herding formation between high-risk stocks and low-risk stocks, but the influence of high-risk stocks on the low-risk stocks is stronger than that of low-risk stocks on the high-risk stocks.

Keywords: Stock characteristics, herding formation, investment decision, US equity market, lead-lag relationship.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1132697

Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 455

References:


[1] A. V. Banerjee, “A simple model of herd behavior”, Quarterly Journal of Economics, vol. 107, no. 3, pp. 797-817, 1992.
[2] J. R. Nofsinger, and R. W. Sias, “Herding and feedback trading by institutional and individual investors”, Journal of Finance, vol. 54, no. 6, pp. 2263-2295, 1999.
[3] S. Hwang, and M. Salmon, “Market stress and herding”, Journal of Empirical Finance, vol. 11, no.4, pp. 585-616, 2004.
[4] T. C. Chiang, and D. Zheng, “An empirical analysis of herd behavior in global stock markets”, Journal of Banking & Finance, vol. 34, no. 8, pp. 1911-1921, 2010.
[5] S. Bikhchandani, D. Hirshleifer, and I. Welch, “A theory of fads, fashion, custom, and cultural change as informational cascades”, Journal of Political Economy, vol. 100, no. 5, pp. 992-1026, 1992.
[6] E. C. Chang, J. W. Cheng, and A. Khorana, “An examination of herd behavior in equity markets: An international perspective”, Journal of Banking & Finance, vol. 24, no. 10, pp. 1651-1679, 2000.
[7] N. Blasco, P. Corredor, and S. Ferreruela, “Does herding affect volatility? Implications for the Spanish stock market”, Quantitative Finance, vol. 12, no. 2, pp. 311-327, 2012.
[8] C.-H. Chang, and S.-J. Lin, “The effects of national culture and behavioral pitfalls on investors’ decision-making: Herding behavior in international stock markets”, International Review of Economics & Finance, vol. 37, pp. 380-392, 2015.
[9] R. Wermers, “Mutual fund herding and the impact on stock prices”, Journal of Finance, vol. 54, no. 2, pp. 581-622, 1999.
[10] R. T. Zhou, and R. N. Lai, “Herding and information based trading”, Journal of Empirical Finance, vol. 16, no. 3, pp. 388-393, 2009.
[11] S. Kremer, and D. Nautz, “Causes and consequences of short-term institutional herding”, Journal of Banking & Finance, vol. 37, no. 5, pp. 1676-1686, 2013.
[12] C.-H. Chang, H.-H. Huang, Y.-C. Chang, and T.-Y. Lin, “Stock characteristics, trading behavior, and psychological pitfalls”, Managerial Finance, vol. 41, no. 12, pp. 1298-1317, 2015.
[13] L. Tan, T. C. Chiang, J. R. Mason, and E. Nelling, “Herding behavior in Chinese stock markets: An examination of A and B shares”, Pacific-Basin Finance Journal, vol. 16, no.1-2, pp. 61-77, 2008.
[14] T. C. Chiang, J. Li, and L. Tan, “Empirical investigation of herding behavior in Chinese stock markets: Evidence from quantile regression analysis”, Global Finance Journal, vol. 21, no. 1, pp. 111-124, 2010.
[15] R. Chiang, and W. Fong, “Relative informational efficiency of cash, futures, and options markets: the case of an emerging market”, Journal of Banking & Finance, vol. 25, no. 2, pp. 355-375, 2001.
[16] C.-H. Chang, H.-I. Cheng, I.-H. Huang, and H.-H. Huang, “Lead-lag relationship, volatility asymmetry, and overreaction phenomenon”, Managerial Finance, vol. 37, no. 1, pp. 47-71, 2011.
[17] C.-H. Chang, “The relationship between the disposition effect and herding behavior: Evidence from Taiwan’s information technology stocks,” World Academy of Science, Engineering and Technology: International Journal of Social, Behavioral, Educational, Economics, Business and Industrial Engineering, vol. 7, no. 7, pp. 1971-1975, 2013.
[18] C.-H. Chang, S.-S. Chen, and S.-L. Hsieh, “Asymmetric reinforcement learning and conditioned responses during the 2007–2009 global financial crisis: Evidence from Taiwan”, Review of Pacific Basin Financial Markets and Policies, vol. 20, no. 2, pp. 1750010-1~1750010-44, 2017.