Stock Characteristics and Individual Herding: A Causal-Comparative Study

Stock Characteristics and Individual Herding: A Causal-Comparative Study

Tze Sun Wong
Copyright: © 2020 |Pages: 16
DOI: 10.4018/IJABE.2020100104
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Abstract

Individuals who invest stocks in a market with excess volatility generally end up selling or holding the stocks at losses. The purpose of this study was to examine individual herding as it related to three comprehensible stock characteristics, market capitalization, price-to-book ratio, and industry affiliation. The target population was the individual investors who traded in Taiwan Stock Exchange in 2016. Data were collected through subscription. Based on Lakonishok, Shleifer, and Vishny's measure, individual herding was significant. The three stock characteristics were separately and as a whole related to individual herding. The findings confirmed sell-herding higher than buy-herding, more serious herding in high market capitalization stocks, and broad industry herding. The findings also extended knowledge to comparable herding levels with 8 to 10 years ago, more linearity between log market capitalization and log odds of herd occurrence, and less herding in P/B ratio stocks with other independent variables controlled.
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Background

Herding occurred in developed stock markets. It was present in the NYSE, AMEX, and NASDAQ and partly attributed for different financial crises and bubbles between 1985 and 2013 (Litimi, BenSaida, & Bouraoui, 2016). Roszkowski and Richie (2016) found herding, in the United States markets, in the 1,581 stocks recommended by Jim Cramer’s Mad Money between July 2005 and February 2009. Another developed stock market is London Stock Exchange on which herding was evident in the Financial Times Stock Exchange 100 constituent stocks on golden-cross days (Ni, Liao, & Huang, 2015). Herding occurred in emerging stock markets as well. Ramadan (2015) detected herding in the Amman Stock Exchange 100 constituent stocks between January 2000 and August 2014. Other two emerging stock markets were Shanghai Stock Exchange (SHSE) and Shenzhen Stock Exchange (SZSE). Herding occurred in A-share of both between 1999 and 2003, in Shanghai B-share between 1999 and 2008, and in Shenzhen B-share between 1999 and 2003 (Yao, Ma, & He, 2014).

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