THE IMPACT OF MACROECONOMIC FACTORS ON THE HERDING BEHAVIOUR OF INVESTORS

Journal Title: Asian Economic and Financial Review - Year 2015, Vol 5, Issue 2

Abstract

This study uses the linear model based on the notion of cross-sectional standard deviation (CSSD) by Christie and Huang (1995) and nonlinear model based on cross-sectional absolute deviation (CSAD) proposed by Chang et al. (2000) to provide evidence for the existence of herding behaviour by investors in Taiwan during the period January 4, 2000 to December 28, 2012. We examine whether returns, volume, volatility, S&P500, volatility index (VX) and financial crisis influence the cross-sectional dispersion of the stock market. Macroeconomics is an important factor for the stock market; thus, this paper further examines how exchange rate and interest rate affect herding effect. We investigate asymmetric herding behaviour under different market conditions. Finally, this paper uses quantile regression to estimate the herding effect. First, we find evidence of herding behaviour based on the CSAD model. Second, the cross-sectional return dispersion in Taiwan exhibits a positive (negative) relationship with the US market and financial crisis (interest rate). Third, we find asymmetric herding behaviour under different conditions for market returns, trading volume, VX and interest rate. Fourth, Taiwan?s investors consistently exhibit herding behaviour in different quantiles during different market conditions.

Authors and Affiliations

Yen-Hsien Lee*| Department of Finance, Chung Yuan Christian University, Taiwan, R.O.C, Ting-Huei Liao| Department of Banking and Finance, Tamkang University, Taiwan, R.O.C, Chih-Ming Hsu| Department of Finance, Chung Yuan Christian University, Taiwan, R.O.C

Keywords

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  • EP ID EP2166
  • DOI -
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How To Cite

Yen-Hsien Lee*, Ting-Huei Liao, Chih-Ming Hsu (2015). THE IMPACT OF MACROECONOMIC FACTORS ON THE HERDING BEHAVIOUR OF INVESTORS. Asian Economic and Financial Review, 5(2), 295-304. https://europub.co.uk/articles/-A-2166