Herd Behaviors in the Stock and Foreign Exchange Markets

Kyungsik Kim; Seong-Min Yoon; Yup Kim

doi:10.1016/j.physa.2004.05.052

paper

Herd Behaviors in the Stock and Foreign Exchange Markets

arXiv:cond-mat/0304451 · doi:10.1016/j.physa.2004.05.052

Abstract

The herd behaviors of returns for the won-dollar exchange rate and the KOSPI are analyzed in Korean financial markets. It is shown that the probability distribution $P (R)$ of price returns $R$ for three values of the herding parameter tends to a power-law behavior $P (R) ≃ R^{- β}$ with the exponents $β = 2.2$ (the won-dollar exchange rate) and 2.4(the KOSPI). The financial crashes are found to occur at $h > 2.33$ when the relative increase in the probability distribution of exteremely high price returns is observed. Especially, the distribution of normalized returns shows a crossover to a Gaussian distribution for the time step $Δ t = 252$ . Our results will be also compared to the other well-known analyses.

4 pages, 5 figures