Yu-Fen Chen, Thomas C. Chiang, Fu-Lai Lin and Sheng-Yung Yang
This chapter examines herd behavior across national borders. A dynamic latent factor model with Gibbs sampling is used to decompose the national herd behavior into the world…
Abstract
This chapter examines herd behavior across national borders. A dynamic latent factor model with Gibbs sampling is used to decompose the national herd behavior into the world, regional, and country-specific components. Testing the daily data from 2000 through 2014 for 47 countries, we find that the impact of world factor on national herd behavior is short-lived. This study indicates that world and regional factors play a significant role in explaining the variations of national herd behavior, constituting 33% of the herding variability. The significance of world and regional components is likely to produce a biased herding estimator.
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Leese L. Mendy, Sheng-Yung Yang and Wei-Zhong Shi
This chapter examines the impact of economic policy uncertainty (EPU) on bank profitability, using a sample of US banks from 2001 to 2016. We find a robust negative relationship…
Abstract
This chapter examines the impact of economic policy uncertainty (EPU) on bank profitability, using a sample of US banks from 2001 to 2016. We find a robust negative relationship between the aggregate level of policy uncertainty and bank profitability. The channel analysis shows that policy uncertainty can significantly reduce loan growth and increase the nonperforming loan ratio. More importantly, we find critical evidence that bank capital can improve the impact of policy uncertainty on the bank's economic performance and operation. Overall, this chapter has an important policy implication: policymakers can reduce the adverse effect of policy uncertainty on the banking industry through measures to stabilize bank capital adequacy.
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Yu‐Fen Chen, Sheng‐Yung Yang and Fu‐Lai Lin
The purpose of this paper is to: investigate whether the foreign institutional investors in Taiwan herd towards the stocks in the same industry; identify the causes of industrial…
Abstract
Purpose
The purpose of this paper is to: investigate whether the foreign institutional investors in Taiwan herd towards the stocks in the same industry; identify the causes of industrial herding; analyze whether herding behavior impacts future industrial returns; and trace the changing pattern of industrial herding, especially during the 2007‐2008 financial crisis.
Design/methodology/approach
This paper applies Sias' herding measure to identify foreign institutional industrial herding behavior. Moreover, to identify the causes and impacts of herding, the authors use regression models to analyze the relationship between foreign institutional demand for stocks in some particular industries and industrial returns, controlling industrial market capitalization, the number of firms in the industry and industrial speculative intensity. The above methods are applied to the full sample period, as well as two sub‐periods, respectively, to trace the time‐varying trading behavior.
Findings
First, on average, foreign institutional investors herd in the Taiwan securities market. They follow each other into and out of the same industries. Second, they were momentum traders in the tranquil period from 2002 to 2006 and contrarian traders in the period of 2007‐2008 financial crisis. Third, such herding behavior has positive impacts on future industrial returns both in the tranquil period as well as in turbulent time. The authors thus conclude that foreign institutional investors demonstrated contrarian trading strategies to stabilize future industrial returns in the financial crisis period; they buy past losers to support the prices and sell past winners to suppress the price volatility.
Originality/value
This paper investigates foreign institutional herding behavior in an emerging market, Taiwan on the micro setting of industrial base. It identifies the causes and impacts of foreign institutional industrial herding from the outlook of information‐base versus non‐information‐base trading. It also traces time‐varying herding behavior, especially during the 2007‐2008 financial crisis. This paper provides useful information to investors participating in emerging markets like Taiwan.