Empirical Estimation of Banks' Herding in the Korean Loan Markets (in Korean)

Jong-Ku Kang ()
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Jong-Ku Kang: Financial Economic Research Institute, The Bank of Korea

Economic Analysis (Quarterly), 2010, vol. 16, issue 1, 1-36

Abstract: This paper presents the revamped index for measuring the intensity of herding. The index presented in this paper can measure the intensity of an individual's herding and it conforms to the economic definition of herding. The result of measuring Korean banks' herding using the index shows that the intensity of banks' herding in the household loan market was high from late 2002 to early 2003 and that in the SME loan market was high around early 2004 and late 2006. These days, however, the herding indexes for the both loan markets are on the decrease. Next, the result of empirical estimations that use the intensity of each bank's herding as an explanatory variable, and the proxies of the factors affecting banks' herding as independent variables, reveals that a bank with smaller amount of information is more likely to herd. And a bank that attaches smaller importance to business stability or has lower loan market share tends to herd greatly. It is also found that variables indicating macro-economic activities or the loan market structure can explain changes in the intensity of herding: the higher the M1/Lf ratio, the severity of competition among banks, or the loan market concentration is, the greater the intensity of herding.

Keywords: Herding; Bank Loan; Financial stability (search for similar items in EconPapers)
JEL-codes: G10 G14 G21 (search for similar items in EconPapers)
Date: 2010
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