Download or read book Two Essays on Herding in Financial Markets written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The dissertation consists of two essays. In the first essay, we measure herding by institutional investors in the new economy (internet) stocks during 1998-2001 by examining the changes in the quarterly institutional holdings of internet stocks relative to an average stock. More than 95% of the stocks that are examined are listed on NASDAQ. The second essay attempts to detect intra-day herding using two new measures in an average NYSE stock during 1998-2001. In the second essay, rather than asking whether institutional investors herd in a specific segment of the market, we endeavor to ask if herding occurs in an average stock across all categories of investors. The first essay analyzes herding in one of the largest bull runs in the history of U.S. equity markets. Instead of providing a corrective stabilizing force, banks, insurance firms, investment companies, investment advisors, university endowments, hedge funds, and internally managed pension funds participated in herds in the rise and to a lesser extent in the fall of new economy stocks. In contrast to previous research, we find strong evidence of herding by all categories of institutional investors across stocks of all sizes of companies, including the stocks of large companies, which are their preferred holdings.

Download or read book Three Essays on Herding and Strategic Usage of Information in Financial Markets written by Ya Tang and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2000 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Trading in Financial Markets written by Alessia Testa and published by . This book was released on 2012 with total page 270 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first part of the thesis consists of three chapters focusing on herd behavior in financial markets. Chapter one reviews the herding literature while chapter two studies a market where informed and noise traders show up sequentially and anonymously in front of a competitive and risk neutral market maker. Traders can in some cases observe whether some of their predecessors were informed, although they cannot observe their private in- formation. This creates an informational asymmetry between the traders and the market maker which generates herd behavior. I find that herd and contrarian behavior is gener- ated more easily in better-informed markets than in poorly informed ones. Informational cascades can never occur and the market learns in the limit. Moreover, I illustrate how a market dominated by herding features a price that is more informative of the asset value than the price of a market where traders always follow their signal. I also discuss how contrarianism has the exact opposite effect by decreasing price informativeness. In chap- ter two I consider the case of multiple trading rooms, where traders can in some cases observe whether some of the predecessors coming from the same room were informed. I first analyze herding conditions for the case of disconnected rooms where agents trading during the same time exhibit information correlation, and find that herding is more likely to occur in a market with positive correlation than in a market without correlation. I then link rooms by means of a network structure which dictates which rooms' predecessors one can observe. I check whether it is possible for a trader to herd with traders outside his own neighborhood instead of with his direct neighbors. I find that the answer to this question is negative and that herding cannot spread from one part of the market to another. Finally, I bring together information correlation and the network structure and I illustrate the example of a market where there are trading histories such that herd behavior can lead to the complete loss of information and, once herding has started, learning can be recovered only if noise traders enter the market. In the second part of the thesis I build a signalling model of delegated portfolio management where the manager can be of different qualities which affect the performance of the closed-end fund under his management. I find that in his effort to appear of high quality, the manager sends signals to the market which affect the share price of the fund in such a way that momentum and reversal are generated. While in the momentum phase, the price accumulates a discount with respect to its net asset value; during the reversal phase, the discount narrows and the price reverses back towards the net asset value of the fund.

Download or read book Herd Behavior in Financial Markets written by Marco Cipriani and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on Signaling in Financial Markets written by Kartik Raman and published by . This book was released on 1998 with total page 192 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Two Essays on Financial Market Behavior written by Dazhi Zheng and published by . This book was released on 2010 with total page 246 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Behavioral Finance written by Sujung Choi and published by . This book was released on 2012 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays. In the first essay, "Investor misvaluation, signaling, and takeovers: Evidence from closed-end fund discounts", I investigate investor misvaluation as a motivation for closed-end fund mergers and acquisitions (M & As). Following previous studies, I view the closed-end fund discount as a proxy for investor misvaluation at the individual fund level. When a closed-end fund suffers from investor misvaluation in the stock market, closed-end fund M & As can be served to investors to signal a rosy prospect for the closed-end fund, or a synergy effect. Using comprehensive data of closed-end fund M & As from 1994 through 2009, I find that (1) both acquirer and target funds experience deep fund discounts over pre-announcement periods and (2) acquirer funds are less likely to be undervalued than target funds, and target funds are more deeply undervalued than acquirer funds when M & As occur. After M & A announcements, fund discounts shrink for targets, but go slightly deeper for acquirers. In the long run, fund discounts of the combined funds shrink even for acquirers, and the misvaluation on acquirer and target closed-end funds is corrected. Post-merger objective-adjusted performance initially improves for both acquirer and target funds because of the synergies perceived by investors, but generally worsens on average in the third year following the M & As. In the second essay, "Herding among individual investors in the Korean stock market", I investigate whether herding among local individual investors exists in the Korean stock market. I examine the hypothesis of whether a potential investor's decision, such as picking a particular stock within a given period, correlates with the decisions of neighbors living in the same area. Using a unique dataset on individual online and offline trading obtained from a brokerage firm in Korea, I analyze the buying and selling transactions of 10,000 individual accounts from February 1999 to December 2005. By employing the herding measure proposed by Lakonishok, Shleifer, and Vishny (1992), I report that individual investors herd on a given stock-month and stock-day. Offline investors in the same local area exhibit stronger herding compared to online investors. Using OLS regressions, I find that own-area effects, or correlated trades by individual investors who are geographically close, are stronger compared to other-area effects in both contemporaneous and lagged coefficients. Investors who are male, wealthy, and non-religious tend to invest more in the stock market compared to investors who are female and Protestant.

Download or read book Inefficient Markets written by Andrei Shleifer and published by OUP Oxford. This book was released on 2000-03-09 with total page 295 pages. Available in PDF, EPUB and Kindle. Book excerpt: The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets.

Download or read book Herd Behavior in Financial Markets written by Sushil Bikhchandani and published by . This book was released on 2005 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Policymakers often express concern that herding by financial market participants destabilizes markets and increases the fragility of the financial system. This paper provides an overview of the recent theoretical and empirical research on herd behavior in financial markets. It addresses the following questions: What precisely do we mean by herding? What could be the causes of herd behavior? What success have existing studies had in identifying such behavior? And what effect does herding have on financial markets?

Download or read book Essays on Risk and Uncertainty in Economics and Finance written by Jorge Mario Uribe Gil and published by Ed. Universidad de Cantabria. This book was released on 2022-11-22 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book adds to the resolution of two problems in finance and economics: i) what is macro-financial uncertainty? : How to measure it? How is it different from risk? How important is it for the financial markets? And ii) what sort of asymmetries underlie financial risk and uncertainty propagation across the global financial markets? That is, how risk and uncertainty change according to factors such as market states or market participants. In Chapter 2, which is entitled “Momentum Uncertainties”, the relationship between macroeconomic uncertainty and the abnormal returns of a momentum trading strategy in the stock market is studies. We show that high levels of uncertainty in the economy impact negatively and significantly the returns of a portfolio of stocks that consist of buying past winners and selling past losers. High uncertainty reduces below zero the abnormal returns of momentum, extinguishes the Sharpe ratio of the momentum strategy, while increases the probability of momentum crashes both by increasing the skewness and the kurtosis of the momentum return distribution. Uncertainty acts as an economic regime that underlies abrupt changes over time of the returns generated by momentum strategies. In Chapter 3, “Measuring Uncertainty in the Stock Market”, a new index for measuring stock market uncertainty on a daily basis is proposed. The index considers the inherent differentiation between uncertainty and the common variations between the series. The second contribution of chapter 3 is to show how this financial uncertainty index can also serve as an indicator of macroeconomic uncertainty. Finally, the dynamic relationship between uncertainty and the series of consumption, interest rates, production and stock market prices, among others, is analized. In chapter 4: “Uncertainty, Systemic Shocks and the Global Banking Sector: Has the Crisis Modified their Relationship?” we explore the stability of systemic risk and uncertainty propagation among financial institutions in the global economy, and show that it has remained stable over the last decade. Additionally, a new simple tool for measuring the resilience of financial institutions to these systemic shocks is provided. We examine the characteristics and stability of systemic risk and uncertainty, in relation to the dynamics of the banking sector stock returns. This sort of evidence is supportive of past claims, made in the field of macroeconomics, which hold that during the global financial crisis the financial system may have faced stronger versions of traditional shocks rather than a new type of shock. In chapter 5, “Currency downside risk, liquidity, and financial stability”, downside risk propagation across global currency markets and the ways in which it is related to liquidity is analyzed. Two primary contributions to the literature follow. First, tail-spillovers between currencies in the global FX market are estimated. This index is easy to build and does not require intraday data, which constitutes an important advantage. Second, we show that turnover is related to risk spillovers in global currency markets. Chapter 6 is entitled “Spillovers from the United States to Latin American and G7 Stock Markets: A VAR-Quantile Analysis”. This chapter contributes to the studies of contagion, market integration and cross-border spillovers during both regular and crisis episodes by carrying out a multivariate quantile analysis. It focuses on Latin American stock markets, which have been characterized by a highly positive dynamic in recent decades, in terms of market capitalization and liquidity ratios, after a far-reaching process of market liberalization and reforms to pension funds across the continent during the 80s and 90s. We document smaller dependences between the LA markets and the US market than those between the US and the developed economies, especially in the highest and lowest quantiles.

Download or read book Two Essays on Institutional Investors written by Hoang Huy Nguyen and published by . This book was released on 2007 with total page 111 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays investigating the trading by institutions and its impact on the stock market. In the first essay, I investigate why changes in institutional breadth predict return. I first show that changes in breadth are positively associated with abnormal returns over the following four quarters. I then demonstrate that this return predictability can be attributed to the information about the firms' future operating performance. When I examine different types of institutions independently, I find that the predictive power varies across the population of institutions. More specifically, institutions that follow active management style are better able to predict future returns than the passive institutions, and their predictive power appears to be associated with information about future earnings growth. These findings are consistent with the information hypothesis that changes in breadth of institutional ownership can predict return because they contain information about the fundamental value of firms. In the second essay, I examine institutional herding behavior and its impact on stock prices. I document that herds by institutions usually last for more than one quarter and that herds occur more frequently for small and medium size stocks. I find that after herds end, there are reversals in stocks returns for up to four quarters. The magnitude of reversals is positively related to the duration of herding, and negatively related to the price impact of current herding activity. This pattern in returns prevails for all sub-periods examined and is concentrated in small and medium size stocks. My findings suggest that institutional herding may destabilize stock prices.

Download or read book Hedge Funds and Financial Market Dynamics written by Mrs.Anne Jansen and published by International Monetary Fund. This book was released on 1998-05-15 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: Hedge funds are collective investment vehicles, often organized as private partnerships and resident offshore for tax and regulatory purposes. Their legal status places few restrictions on their portfolios and transactions, leaving their managers free to use short sales, derivative securities, and leverage to raise returns and cushion risk. This paper considers the role of hedge funds in financial market dynamics, with particular reference to the Asian crisis.

Download or read book Three Essays on Financial Markets written by Lu Zhang and published by . This book was released on 2015 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays. The first essay studies the ability of stock return idiosyncrasy to predict future economic conditions over time. The second essay investigates the technological innovation and creative destruction during the 1920s and the 1930s, one of the most innovative periods in the 20th century. The third essay tests the performance of an investment strategy using information about past market-wide comovement. Stock return idiosyncrasy, defined as the ratio of firm-specific to systematic risk in individual stock returns, contains information about future growth rate in real GDP, industrial production, real fixed assets investment, and unemployment. Forecasts are generally significant one-quarter-ahead, particularly after World War II. These effects persist after controlling for other potential leading economic indicators, both in-sample and out-of-sample. These findings are consistent with information generating firms, presumably uniquely well-informed about economic conditions because their core business is information, adjusting their information production before downturns. The second essay studies the process of creative destruction during the technological revolution in the 1920s and 1930s. Intensified creative destruction magnifies the performance gap between winner and loser firms, and thus elevates firm-specific stock return variation. We find high firm-specific return variation in innovative industries and firms during the 1920s boom and the subsequent depression. We also find some evidence of elevated firm-specific return variation in manufacturing sectors with higher labor productivity, more research staff and more extensive electrification. In the third essay, we define the directional market-wide comovement measure as the proportion of stocks moving up together. Positing that high comovement reflects large fund inflows, we devise an investment strategy of entering the market whenever positive directional market-wide comovement passes a certain threshold. Specifically, this comovement-based investment strategy holds the market index when the market-wide upward comovement in the prior one to four weeks is above the fourth decile of the historical comovement distribution, and invests in the risk-free asset otherwise. During the sample period of 1954 to 2014, this strategy outperforms the NYSE value-weighted market index by 6.42% per year. Out of sample tests using NASDAQ stocks and TSE stocks validate the strategy. Our findings suggest that marketwide upward comovement identifies periods of market run-ups, when unsophisticated investor buying is apt to be driven by herding or information cascades.

Download or read book Essays on the Great Depression written by Ben S. Bernanke and published by Princeton University Press. This book was released on 2024-01-09 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt: From the Nobel Prize–winning economist and former chair of the U.S. Federal Reserve, a landmark book that provides vital lessons for understanding financial crises and their sometimes-catastrophic economic effects As chair of the U.S. Federal Reserve during the Global Financial Crisis, Ben Bernanke helped avert a greater financial disaster than the Great Depression. And he did so by drawing directly on what he had learned from years of studying the causes of the economic catastrophe of the 1930s—work for which he was later awarded the Nobel Prize. Essays on the Great Depression brings together Bernanke’s influential work on the origins and economic lessons of the Depression, and this new edition also includes his Nobel Prize lecture.

Download or read book Herd Behavior Towards the Market Index written by Daxue Wang and published by . This book was released on 2009 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper uses the cross-sectional variance of the betas to study herd behavior towards market index in major developed and emerging financial markets (categorized as developed group, Asian group, and Latin American group). We propose a robust regression technique to calculate the betas of the CAPM and those of the Fama-French three-factor model, with an intention to diminish the impact of multivariate outliers in return data. Through the estimated values obtained from a state space model, we examine the evolution of herding measures, especially their pattern around sudden events such as the 1997-1998 financial crises. This 1997-1998 turmoil turns out to have formed a turning point for most of the financial markets. We document a higher level of herding in emerging markets than in developed markets. We also find that the correlation of herding between two markets from the same group is higher than that between two markets from different groups. This paper will shed light on the calculation of beta and on the financial policy to understand the dynamics of herding in financial markets.

Download or read book Essays on Stock Trading Volume Volatility and Information written by Hanfeng Wang and published by Open Dissertation Press. This book was released on 2017-01-27 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation, "Essays on Stock Trading Volume, Volatility and Information" by Hanfeng, Wang, 王漢鋒, was obtained from The University of Hong Kong (Pokfulam, Hong Kong) and is being sold pursuant to Creative Commons: Attribution 3.0 Hong Kong License. The content of this dissertation has not been altered in any way. We have altered the formatting in order to facilitate the ease of printing and reading of the dissertation. All rights not granted by the above license are retained by the author. Abstract: Abstract of the thesis entitled Essays on Stock Trading Volume, Volatility and Information Submitted By Hanfeng WANG For the Degree of Doctor of Philosophy at the University of Hong Kong in June 2007 We focus on three topics that relate to trading volume in stock market in this thesis. In the first essay we find that trading volume not only contributes positively to the contemporaneous volatility, as indicated in previous literature, but also contributes negatively to the subsequent volatility. This pattern between trading volume and volatility is consistently held among individual stocks, volume-based portfolios, size-based portfolios, and market index, and among daily data and weekly data. These empirical findings tend to support that the Information-Driven-Trade (IDT) hypothesis is more pervasive and powerful in explaining trading activities in the stock market than the Liquidity-Driven-Trade (LDT) hypothesis. Our additional tests obtain three interesting findings, 1) liquidity and the degree of information asymmetry influence the relation between volume and subsequent volatility, 2) the effect of volume on subsequent volatility and volume size have a non-linear relationship, indicating that at least empirically there exists a most information-intensive volume for each stock, which is consistent with Barclay and Warner (1993, JFE)'s finding, 3) the effect of volume on subsequent volatility is asymmetric when the stock price moves up and down, and we attribute this asymmetry to the short-selling constraints. 2 In the second essay we examine the price and trading volume reaction around annual earnings announcements in the Chinese A-share and B-share markets. We document a reverting pattern in the CAR series around earnings announcement in A share market while the behavior of the CAR series in B share market is quite similar to that found in developed markets. We argue that the difference may be due to that some of the A share investors overreact to the information before the earnings announcement. Additionally, abnormally high volume occurs around the earnings announcement, in both A-share and B-share markets, however, contrary to abnormally high volume several days before the announcement in B-share market, abnormally low volume exists several days prior to the announcement in A-share market. Through cross-sectional analysis we find that abnormal trading volume on the announcement day, taken as an index of the surprise of earnings announcement, and the responsiveness of the market are positively correlated, and that the average return before the announcement is negatively correlated with the CAR after the announcement, which supports the A-share investors' overreaction to earnings announcement. We also find some evidence that A-share investors tend to be influenced by the market conditions. In the third essay we review the literature on herding behavior in financial market and build a new empirical model based on stock trading volume to detect the overall market herding behavior. With the model we find that in the Chinese stock market there is herding when the market moves up and there is no or little evidence of herding when the market moves down. For comparison we also extend the test to other international markets. Based on the empirical results we document with the Chinese market data we suggest canceling t