Herd Behaviors in the Stock and Foreign Exchange Markets

Details Herd Behaviors in the Stock and Foreign Exchange Markets Herd Behaviors in the Stock and Foreign Exchange Markets

2003-04-21

arxiv.org/abs/cond-mat/0304451v1

Physics

Condensed Matter

Statistical Mechanics

4 pages, 5 figures

Scientific paper

10.1016/j.physa.2004.05.052

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 $P(R) \simeq R^{-\beta}$ with the exponents $ \beta=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 $\Delta t=252$. Our results will be also compared to the other well-known analyses.

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