Empirical Investigation of Herding Behavior in East Asian Stock Markets Toward the U.S. Market

Shih-Jui Yang, Ai-Chi Hsu, Show-Yen Lai and Chien-Chiang Lee ()

The International Journal of Business and Finance Research, 2015, vol. 9, issue 1, 19-32

Abstract: This paper examines the shift of dominance of the American stock market. We also observe herding behavior changes of major Asia Pacific regions towards the American market in the wake of major events that affected financial markets. Events examined include the Asian financial crisis, Internet bubble, September 11 attacks, SARS outbreak, and global financial crisis. Evidence shows the American stock market still held the leading position over the East Asian markets in the wake of these major events. We define the continuing bull (and continuing bear) of the American stock market as the dummy variable of herding behavior. We compare the difference in stock returns before and after structural breaks by investigation into the stock markets in Hong Kong, Taiwan, and Japan. Finally, we propose suitable investment strategies related to herding behavior in the East Asian stock markets toward the American stock market. The examination of out-of-sample profitability revealed the proposed investment strategies contributed to significantly positive average portfolio returns, whether in continuing bull or continuing bear markets.

Keywords: Continuing Bull; Continuing Bear; Herding Behavior; Investment Strategy (search for similar items in EconPapers)
JEL-codes: G15 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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