Herd Behaviors in the Stock and Foreign Exchange Markets
Abstract
The herd behaviors of returns for the won-dollar exchange rate and the KOSPI are analyzed in Korean financial markets. It is shown that the probability distribution P(R) of price returns R for three values of the herding parameter tends to a power-law behavior P(R) R-β with the exponents β=2.2(the won-dollar exchange rate) and 2.4(the KOSPI). The financial crashes are found to occur at h >2.33 when the relative increase in the probability distribution of exteremely high price returns is observed. Especially, the distribution of normalized returns shows a crossover to a Gaussian distribution for the time step t=252. Our results will be also compared to the other well-known analyses.
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