The co-movement of stock prices, herd behaviour and high-tech mania

Wen-Chung Guo and Hsiu-Ting Shih

Applied Financial Economics, 2008, vol. 18, issue 16, 1343-1350

Abstract: This article examines the evidence of herd behaviour and stock price co-movement within high-tech stocks in the Taiwan market. We study return dispersion, volatility dispersion and directional co-movement within the industry, finding their relations with high-tech mania and extreme markets. Our empirical results demonstrate more significant evidence of return dispersion, volatility dispersion, and a higher degree of directional co-movement in high-tech industries than in traditional industries. Both return dispersion and volatility dispersion were found to have a consistent association with extreme market movements for high-tech stocks. However, the level of directional co-movement, as a modified measure of herd behaviour, is greater during extreme markets for all industries, with an asymmetric result that has great significance for herding during extreme up markets as related to down markets.

Date: 2008
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DOI: 10.1080/09603100701720310

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