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Effects of Transparency on Herding Behavior: Evidence from the Taiwanese Stock Market

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  • Kuei-Yuan Wang
  • Yu-Sin Huang

Abstract

This study combines the concepts of information asymmetry from classical finance theory and herding behavior from modern behavioral finance theory to investigate whether herding behavior exists in the Taiwan stock market. Scores from the Information Disclosure and Transparency Ranking System (IDTRs) are incorporated into the nonlinear model proposed by Chang, Cheng, and Khorana (2000). The empirical results reveal that herding behavior is prevalent in the Taiwan stock market and the implementation of the IDTRs has effectively discouraged such behavior. In addition, the empirical results of this study reveal that the lower level of transparency, the more prevalent of herding behavior in the Taiwan stock market. The empirical results confirm the government’s efforts to increase the transparency of listed firms in order to reduce information asymmetry and prevent investors from engaging in herding behaviors.

Suggested Citation

  • Kuei-Yuan Wang & Yu-Sin Huang, 2020. "Effects of Transparency on Herding Behavior: Evidence from the Taiwanese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(8), pages 1821-1840, July.
    • Handle: RePEc:mes:emfitr:v:55:y:2020:i:8:p:1821-1840
    DOI: 10.1080/1540496X.2018.1504289
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    Cited by:

    1. Loang Ooi Kok & Ahmad Zamri, 2021. "Does volatility mediate the impact of analyst recommendations on herding in Malaysian stock market?," Economics and Business Review, Sciendo, vol. 7(4), pages 54-71, December.

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