Herd Behaviors in Financial Markets

Abstract

We investigate the herd behavior of returns for the yen-dollar exchange rate in the Japanese financial market. It is obtained that the probability distribution $P(R)$ of returns $R$ satisfies the power-law behavior $P(R)\simeq R^{-\beta }$ with the exponents $\beta =3.11$(the time interval $\tau =$ one minute) and 3.36($\tau =$ one day). The informational cascade regime appears in the herding parameter $H\ge 2.33$ at $\tau =$ one minute, while it occurs no herding at $\tau =$ one day. Especially, we find that the distribution of normalized returns shows a crossover to a Gaussian distribution at one time step $\Delta t=1$ day.

arXiv comment15 pages, 6 figures