HERD BEHAVIOR IN INTERNATIONAL MARKET
HERD BEHAVIOR IN INTERNATIONAL MARKET

Summary/Abstract: According to literature, herding can be observed not only within 7 single stock market, but also on international level. Poland has entrance to 8 Euro Zone in perspective, so especially interesting is answer to the question 9 whether herding is present on the stock markets of candidate countries to 10 Euro Zone? Moreover, whether this tendency will be more noticeable in 11 periods of higher volatility than during the periods of relative market 12 stability, as suggested by psychological theories. To find the measure of herd tendency we can refer both to neoclassical and 14 behavioral theories. Basing on models grounded in rationality assumption, 15 there is a need to assume informative efficiency of markets. Thus, it can be 16 expected that aggregated changes in stock markets should be reflected in the 17 process of prices formation. Behavioral literature pointed that if tendency of 18 herding is present on international level, it can be assumed that markets ‘in 19 average’ will behave in the similar way. Following this idea the size of 20 deviation of the given series from the ‘average’ can be taken as the measure 21 of herding activity in aggregated market. Methodology created by Christie, 22 Huang and Chang, Cheng, Khoran will be used as a starting point for the 23 consideration of this problem. To propose more perfect measure of herding, 24 in the paper this approach will be developed by using alternative 25 methodology for average and measure of deviations construction. Those 26 improvements will cause that, theoretical models will come closer to reality 27 and will take into account both sociological and behavioral tendencies 28 present in investors activity.

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