Individualism, Synchronized Stock Price Movements, and Stock Market Volatility

40 Pages Posted: 9 Nov 2012 Last revised: 4 Mar 2013

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2013

Abstract

This paper examines the impact of national culture on herding behaviour across international financial markets. The relation between national culture and investor behaviour, and how it impacts overall market volatility is studied by examining synchronized stock price movements and stock market volatility in 47 countries around the world over the period of January 2003 to May 2012. I find that Nations with lower value of individualistic culture are more likely to have a higher number of synchronized stock price movements. Further, the correlations between stock price movements apparently increase stock market volatility. Nations with high individualistic culture have a lower number of synchronized stock price movements and thus have lower levels of stock market volatility. The positive relationship between synchronized stock price movements and stock market volatility is stronger for emerging markets during the financial crisis from June 2007 to December 2008. The results are statistically significant regardless of the empirical methods and control variables.

Keywords: Information and market efficiency, International financial markets, Financial economics, Herding, Behavioral finance, Market volatility

JEL Classification: G02, G14, G15, N20

Suggested Citation

Zhan, Feng, Individualism, Synchronized Stock Price Movements, and Stock Market Volatility (January 12, 2013). Available at SSRN: https://ssrn.com/abstract=2173060 or http://dx.doi.org/10.2139/ssrn.2173060

Feng Zhan (Contact Author)

Western University ( email )

1151 Richmond St
London, N6A 3K7
Canada

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