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Time-variations in herding behavior: Evidence from a Markov switching SUR model

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  • Klein, Arne C.

Abstract

This paper aims at testing for time-variations in herd behavior in stock markets. In particular, we analyze how investors’ behavior differs between times of market turmoil and tranquil trading periods. Thereby, we take into account herding within a certain market as well as international spillovers in herd formation. Our evidence for the US and the Euroarea suggests that, during periods of high volatility, deviations from rational asset pricing are more persistent and spillovers between the markets are substantially amplified. In general, our findings show that during periods of crisis, like the recent global financial crisis and the period after the dot.com bubble bursting, stock prices are much more driven by behavioral effects compared to tranquil times.

Suggested Citation

  • Klein, Arne C., 2013. "Time-variations in herding behavior: Evidence from a Markov switching SUR model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 291-304.
    • Handle: RePEc:eee:intfin:v:26:y:2013:i:c:p:291-304
    DOI: 10.1016/j.intfin.2013.06.006
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    More about this item

    Keywords

    Herding; Asset pricing; Financial crisis; Markov switching seemingly unrelated regressions;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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