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Portfolio Performance in Relation to Herding Behavior in the Taiwan Stock Market

Author

Listed:
  • Chiao-Yi Chang
  • Hsiang-Lan Chen
  • Zong-Ru Jiang

Abstract

Herding behavior, which is investing in crowded stocks during a specific period, will push the target stocks' return down or up. Using both institutional and individual investors' intraday trading data to calculate the measure of daily herding, we find that a zero-cost investing strategy of buying long and high and selling short and high is profitable. The profits gained strategically through herding by individual investors are greater than those earned by institutional investors. This means institutional investors reflect the information quickly and, although they do behave as a herd, it is harder to exploit the herding of institutional investors to make strategically gained profits.

Suggested Citation

  • Chiao-Yi Chang & Hsiang-Lan Chen & Zong-Ru Jiang, 2012. "Portfolio Performance in Relation to Herding Behavior in the Taiwan Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 48(0), pages 82-104, July.
    • Handle: RePEc:mes:emfitr:v:48:y:2012:i:0:p:82-104
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    Citations

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    Cited by:

    1. Hao Fang & Yang-Cheng Lu & Hwey-Yun Yau, 2014. "The Effects of Stock Characteristics on the Direction and Extent of Herding by Foreign Institutional Investors in the Taiwan Stock Exchange," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(2S), pages 60-74, March.
    2. Rafał Wolski & Monika Bolek & Jerzy Gajdka & Janusz Brzeszczyński & Ali M. Kutan, 2023. "Do investment fund managers behave rationally in the light of central bank communication? Survey evidence from Poland," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 15(5), pages 757-794, February.
    3. Hao Fang & Yang-Cheng Lu & Hwey-Yun Yau, 2014. "The Effects of Stock Characteristics on the Direction and Extent of Herding by Foreign Institutional Investors in the Taiwan Stock Exchange," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(S2), pages 60-74.
    4. Roshani Chamalka Gunathilaka & J. M. Ruwani Fernando, 2021. "Do behavioral biases differ among institutional and individual investors?," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 61-73, June.
    5. Charilaos Mertzanis & Noha Allam, 2018. "Political Instability and Herding Behaviour: Evidence from Egypt’s Stock Market," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1), pages 29-59, April.

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