magazinelogo

Journal of Applied Mathematics and Computation

ISSN Print: 2576-0645 Downloads: 168162 Total View: 1933658
Frequency: quarterly ISSN Online: 2576-0653 CODEN: JAMCEZ
Email: jamc@hillpublisher.com
Article Open Access http://dx.doi.org/10.26855/jamc.2024.03.009

The Influence Between the Decay Speed of Information and Future Asset Price—A New Herd Behavior Model with the Decay Factor

Xi Dai

Lancaster University, Lancaster, Lancashire, UK.

*Corresponding author:Xi Dai

Published: April 26,2024

Abstract

Herding behavior measurement models should consider the time dimension since herding behavior studies support that investors enter the market in sequence. Generally, the more recent information and sentiment should be given greater weight because of a greater impact on prices. This research aims to improve the previous herding sentiment model to explain and predict investors’ behavior and market by adding a time dimension better accurately. This study finds that herd sentiment could be more volatile when the decay speed of information is faster. Moreover, this study utilizes daily tick data from JoinQuant to conduct a simple test of the HS model. The findings suggest that a decrease in the decay parameter of a specific stock or portfolio may signify reduced volatility of herding sentiment and increased volatility of future prices. During a period of volatile prices, the increase of bullish market sentiment created by herd behavior could lead to an asset price increase in the future.

References

[1] Ricciardi, V., Simon, H. K. (2000). What is behavioral finance? Business, Education Technology Journal, 2(2), 1-9.

[2] Rook, L. (2006). An economic psychological approach to herd behavior. Journal of Economic Issues, 40(1), 75-95.

[3] Tuckett, D. (2009). Addressing the psychology of financial markets. Economics: The OpenAccess, OpenAssessment E-Journal, 3(2009-40), 1-22.

[4] Dow, S. C. (2011). Cognition, market sentiment and financial instability. Cambridge Journal of Economics, 35(2), 233-249.

[5] Shleifer, A., Summers, L. H. (1990). The noise trader approach to finance. Journal of Economic Perspectives, 4(2), 19-33.

[6] Fung, W., Hsieh, D. A. (2000). Performance characteristics of hedge funds and commodity funds: Natural vs. spurious biases. Journal of Financial and Quantitative Analysis, 291-307.

[7] Spyrou, S. (2013). Herding in financial markets: a review of the literature. Review of Behavioral Finance.

[8] Sias, R. W. (2004). Institutional herding. The Review of Financial Studies, 17(1), 165-206.

[9] Boyd, N. E., Büyükşahin, B., Haigh, M. S., Harris, J. H. (2016). The prevalence, sources, and effects of herding. Journal of Fu-tures Markets, 36(7), 671-694.

[10] Avery, C., Zemsky, P. (1998). Multidimensional uncertainty and herd behavior in financialmarkets. American Economic Review, 724-748.

[11] Welch, I. (2000). Herding among security analysts. Journal of Financial Economics, 58(3), 369-396.

[12] Sharma, S., Bikhchandani, S. (2000). Herd behavior in financial markets: A review. IMF Working Papers, 2000(048).

[13] Lakonishok, J., Shleifer, A., and Vishny, R.W. (1992). The impact of institutional trading on stock prices. Journal of Financial Economics, Vol. 32 No. 1, pp. 23-43.

[14] Bikhchandani, S., Hirshleifer, D., Welch, I. (1992). A theory of fads, fashion, custom, and ultural change as informational cascades. Journal of Political Economy, 100(5), 992-1026.

[15] Çelen, B., Kariv, S. (2004). Distinguishing informational cascades from herd behavior in the aboratory. American Economic Review, 94(3), 484-498.

[16] K. Brunnermeier, M. A. R. K. U. S., Nagel, S. (2004). Hedge funds and the technology ubble. The Journal of Finance, 59(5), 2013-2040.

[17] Muth, J. F. (1961). Rational expectations and the theory of price movements. Econometrica: Journal of the Econometric Society, 315-335. REFERENCES, 17.

[18] Alexander, S. S. (1961). Price movements in speculative markets: Trends or random walks. Industrial Management Review (pre-1986), 2(2), 7.

[19] Feldman, T. (2010). A more predictive index of market sentiment. Journal of Behavioral Finance, 11(4), 211-223.

[20] Viv Penninti Ravi Koka. (2019). News Based Stock Sentiment. StockSnips, Retrieved from: https://stocksnips.net/materials/news-based-stock-sentiment/.

[21] Blasco, N., Corredor, P., Ferreruela, S. (2012). Market sentiment: a key factor of investors’ imitative behaviour. Accounting Fi-nance, 52(3), 663-689.

[22] López-Salido, D., Stein, J. C., Zakrajšek, E. (2017). Credit-market sentiment and the business cycle. The Quarterly Journal of Economics, 132(3), 1373-1426.

[23] StockSnips. (2018). Is Stock Sentiment a Leading Indicator of Stock Price Changes? StockSnips. Retrieved from: https://stocksnips.net/materials/stock-news-sentiment-vs-stockprice/.

[24] Lemmon, M., Portniaguina, E. (2006). Consumer confidence and asset prices: Some empirical evidence. The Review of Financial Studies, 19(4), 1499-1529.

[25] Brown, G. W., Cliff, M. T. (2005). Investor sentiment and asset valuation. The Journal of Business, 78(2), 405-440.

[26] Baker, M., Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129-151.

[27] Hafezk, P, Xie, J. (2013). Attention Conditions Stock Market Reaction to News Sentiment. RavenPack. 

Retrieved from: https://www.ravenpack.com/research/stock-market-reactionto-news-sentiment/.

[28] Lakonishok, J., Shleifer, A., Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of Financial Economics, 32(1), 23-43.

[29] Daniel, K., Grinblatt, M., Titman, S., Wermers, R. (1997). Measuring mutual fund performance with characteristic-based benchmarks. The Journal of Finance, 52(3), 1035-1058.

[30] Deshpande, Maneesh S. (2020). U.S. Equity Derivatives Strategy: Impact of Retail Options Trading. Retrieved from:

https://wewin.neocities.org/files/Barclays_US_Equity_Derivatives_Strategy_Impact_of_Retail_Options_Trading.pdf.

[31] Nikolaos A. Kyriazis. (2020). Herding behaviour in digital currency markets: An integrated survey and empirical estimation. Heliyon, 6, 8.

[32] Zhenxi Chen, Huanhuan Zheng, (2022). Herding in the Chinese and US stock markets: Evidence from a micro-founded approach. International Review of Economics & Finance, (78), 597-604.

[33] Simon Jurkatis, (2022). Staff Working Paper No. 959 Why you should not use the LSV herding measure. ISSN 1749-9135 (on-line). Retrieved from: Bank of England Staff Working Paper No. 959.

[34] Angela Maria Filip, Maria Miruna Pochea. (2023). Intentional and spurious herding behavior: A sentiment driven analysis. Journal of Behavioral and Experimental Finance, 38.

How to cite this paper

The Influence Between the Decay Speed of Information and Future Asset Price—A New Herd Behavior Model with the Decay Factor

How to cite this paper: Xi Dai. (2024) The Influence Between the Decay Speed of Information and Future Asset Price—A New Herd Behavior Model with the Decay FactorJournal of Applied Mathematics and Computation8(1), 73-82.

DOI: http://dx.doi.org/10.26855/jamc.2024.03.009