Empirical Investigation of the Causal Relationships Among Herding, Stock Market Returns, and Illiquidity: Evidence from Major Asian Markets

Zhuo Qiao, Thomas C. Chiang () and Lin Tan ()
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Thomas C. Chiang: Finance Department, Drexel University, 3220 Market Street, Philadelphia, PA 19104, USA
Lin Tan: Finance, Real Estate and Law Department, California State Polytechnic University Pomona, 3801 West Temple Avenue, Pomona, CA 91768, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2014, vol. 17, issue 03, 1-27

Abstract: We apply the Kalman filter method to estimate nine Asian markets and find evidence that stock return dispersions decline as markets experience stress conditions, supporting the existence of herding. This paper finds that herding behavior is time-varying and comoving across markets. Both linear and nonlinear Granger causality tests conclude that there is strong bilateral causality between herding and returns for all nine Asian markets. For markets in Japan, South Korea, and Thailand, we consistently find strong two-way causality exists in pairwise variables among herding, stock returns, and illiquidity. No consistent evidence can be drawn from other markets for other pairwise variables.

Keywords: Herding behavior; stock return dispersion; Kalman filter; positive feedback; Asian markets; JEL Classifications: G15; JEL Classifications: G14 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S0219091514500180

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