Intraday evidence on relationships among great events, herding behavior, and investors' sentiments

Authors: Chih-Hsiang Chang, Chia-Ching Tsai, I-Hsiang Huang, Hsu-Huei Huang

Journal: Chiao Da Management Review. Jun. 2012, 32(1): 61-106.

Keywords: Intraday data; Investors' sentiments; Great events; Herding behavior; Lead-Lag relationships

Abstract:
This study investigates the intraday herding tendency of investors' trading behavior and sentiments around the three great events that happened during 2005-2008. In comparison with previous literature, this study contains at least four important aspects. First, this study applies 1- minute, 5-minute, and 10-minute intraday data to closely examine the intraday herding of investors. Second, the influence of the three great events that happened during 2005-2008 on the herding tendency of investors' trading behavior and sentiments is explored in this study. Third, we look further into the intraday lead-lag relationships among investors' trading behavior, investors' sentiments, and stock retums. Finally, in order to improve the robustness of empirical findings, both the absolute and relative bid/ask volumes are adopted by this study as proxies of investors' trading behavior. The empirical results of the three-frequency intraday data and those of the two investor trading behavior proxies both show that investors' sentiments lead investors' trading behavior, and both of them exhibit pronounced herding tendency for the models with dummy variables of great events. In addition, the three great events have a significant impact on the conditional volatility of investors' sentiments.