EconPapers    
Economics at your fingertips  
 

Herd behavior of the overall market: Evidence based on the cross-sectional comovement of returns

Kyuseok Lee

The North American Journal of Economics and Finance, 2017, vol. 42, issue C, 266-284

Abstract: Employing the cross-sectional dispersion of returns as a measure detecting the herd behavior of the overall market, previous studies have reported mixed evidence of herding during periods of large price movements in the US stock markets. We reexamine the herd behavior of the overall market by employing a new measure of herding based on the cross-sectional comovement of returns in excess of its expected value under an assumed asset pricing model. Employing the proposed measure based on either the capital asset pricing model or the Fama-French three factor model during the period 7/1963–12/2014, we find strong evidence of herding during periods of mid to large negative price movements, but weak or no evidence of herding during periods of positive price movements. The recent US subprime crisis period is an exception because during the period no significant evidence of herding is found. We also find evidence that properly accounting for the effects of an assumed asset pricing model when calculating the herding measure is important and that the herding behavior of the overall market is likely to be driven by the contemporaneous market-wide information.

Keywords: Herd behavior; Stock market; Return dispersion; Return comovement (search for similar items in EconPapers)
JEL-codes: G14 G12 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940817300402
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:42:y:2017:i:c:p:266-284

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2019-03-02
Handle: RePEc:eee:ecofin:v:42:y:2017:i:c:p:266-284