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Market stress and herding
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Hwang, Soosung and Salmon, Mark H. (2004) Market stress and herding. Discussion Paper. London: Centre for Economic Policy Research (Great Britain). Discussion paper (Centre for Economic Policy Research (Great Britain)) (No.434).
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Abstract
We propose a new approach to detecting and measuring herding which is based on the cross-sectional dispersion of the factor sensitivity of assets within a given market. This method enables us to evaluate if there is herding towards particular sectors or styles in the market including the market index itself and critically we can also separate such herding from common movements in asset returns induced by movements in fundamentals. We apply the approach to an analysis of herding in the US and South Korean stock markets and find that herding towards the market shows significant movements and persistence independently from and given market conditions and macro factors. We find evidence of herding towards the market portfolio in both bull and bear markets. Contrary to common belief, the Asian Crisis and in particular the Russian Crisis reduced herding and are clearly identified as turning points in herding behaviour.
| Item Type: | Working or Discussion Paper (Discussion Paper) | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HB Economic Theory | ||||
| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||
| Library of Congress Subject Headings (LCSH): | Financial institutions -- Econometric models, Efficient market theory, Statistical hypothesis testing, Assets (Accounting) -- Mathematical models | ||||
| Series Name: | Discussion paper (Centre for Economic Policy Research (Great Britain)) | ||||
| Publisher: | Centre for Economic Policy Research (Great Britain) | ||||
| Place of Publication: | London | ||||
| Official Date: | April 2004 | ||||
| Dates: |
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| Number: | No.434 | ||||
| Number of Pages: | 53 | ||||
| Institution: | University of Warwick | ||||
| Status: | Not Peer Reviewed | ||||
| Access rights to Published version: | Open Access | ||||
| URI: | http://wrap.warwick.ac.uk/id/eprint/1702 |
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