Work detail

Herd behavior of investors in the stock market: An analysis of cross-country effects in the CEE

Author: Mgr. Vojtěch Lerche
Year: 2019 - summer
Leaders: PhDr. Jiří Kukačka Ph.D.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 101
Awards and prizes:
Abstract: The thesis examines herding behavior of investors towards the market average in 10 CEE stock markets
during the period 2000–2018. Least squares and quantile regression methods provide evidence of
herding inside the majority of the countries. During the global financial crisis and the Eurozone crisis,
the herding mentality was more intense only in Slovenia and Croatia. The thesis finds mixed results in
asymmetric herding during days of positive and negative market returns. The main finding, and a
contribution to the literature, is that the domestic cross-sectional dispersion of returns in the CEE is
affected by the dispersion of returns of the foreign stock markets in the USA, the UK, and Germany. In
addition, empirical results suggest that extreme market conditions in the U.K. market have an impact
on the formation of herding forces within the CEE stock markets. Short-run arbitrageurs can benefit
from collective decisions of investors that in turn drive stock prices away from their fair value, but the
presence of herding undermines benefits of portfolio diversification. In the long-run, the contagious
international effects may result in a severe instability of the whole region and in market inefficiency.




Patria Finance
Česká Spořitelna