Herding and Returns in Taiwan’s Stock Market

Abstract

In this paper, we systematically examine the market herding behavior in Taiwan with monthly observations of all common stocks from January 1991 to August 2016. Several interesting empirical results emerge. First, Taiwan’s stock market herding is time-varying and negatively correlated with the market sentiment. Secondly, irrespective of the factor model used in estimation, the degree of herding is higher in the pre-2000 and the post-2008 periods. Thirdly, our quantile regression results indicate that during market downturns, a higher degree of market herding can aggravate the panic of the market, which causes the market return to drop even further.