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| Type | Master's Thesis |
| Scope | Discipline-based scholarship |
| Title | Impact of Culture on Herd Behavior in Stock Market |
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| Institution | University of Zurich |
| Faculty | Faculty of Business, Economics and Informatics |
| Number of Pages | 34 |
| Date | 2021 |
| Zusammenfassung | Herd behavior is socially embedded and is thus supposed to demonstrate variation cross countries (regions) and culture clusters. In this article, we focus on the herd behavior in stock market and verify the existence of systematic difference on it. We further explore culture’s impact on herd behavior using Hofstede’s culture dimensions. Following hypotheses are proposed: Hypothesis 1: Individualism decrease the tendency of herd behavior. Hypothesis 2: Power distance increase the tendency of herd behavior. Hypothesis 3: Masculinity decrease the tendency of herd behavior. Hypothesis 4: Uncertainty avoidance increase the tendency of herd behavior. We perform analysis in both individual and national level. For individual level analysis, we use data from study “Preferences, Attitudes, Norms and Decisions in Asia” (PANDA), which investigate diverse economic decisions and has a particular focus in East Asia. All measures are directly or indirectly gained through subjects’ answers. The herd behavior in this questionnaire is narrowed down to stock market participation context and is directly gained through subjects’ answer about whether they may or may not demonstrate herding tendency when considering stock investment. For national level analysis, since we have insufficient number of countries in PANDA dataset, we refer to secondary data on herding tendency to discuss herd effect in financial market and compare on country level with cultural dimensions. We use data from Kumar and Badhani (2018), where herding tendency is calculated based on cross section absolute dispersion of stock returns (CSAD) and market return. The basic structure for analysis is: (i) cross-national (regional) and cross-culture comparison for herd behavior; (ii) individual-level analysis on culture dimensions and herd behavior; (iii) national-level aThrough our analysis, we observe that the distribution of herd behavior in different countries (regions) and culture clusters reveal substantial and systematic variation.nalysis on culture dimensions and herd behavior. China, Taiwan, Vietnam generally have higher tendency for herd behavior, whereas Estonia, Germany, Japan demonstrates less tendency in herding respect. East Asian as a culture group do demonstrate high tendency for herd when it comes to stock market participation, and people believe in Confucianism, Islam, Taoism, Marxism may also have higher herd tendency in terms of financial decision. In analysis with culture dimensions, we find that individualism has negative impact on herding, whereas power distance index has positive impact on it, confirming our hypothesis. Masculinity exhibits negative impact on herd behavior in individual level analysis, but the effect becomes insignificant in country level analysis. The result for uncertainty avoidance index is just insignificant in both individual and country level analysis. |
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