Country herding in the global market

Abstract

Using the tick-by-tick transaction data for 41 stock markets, the authors examine whether investors follow each other into and out of the same countries, dubbed country herding. Empirical evidence is sought to substantiate the existence of country herding in international markets regardless of retail and institutional investors. Additional tests suggest that country herding is not simply a reflection of stock herding, industry herding, and market co-movements. Finally, the findings demonstrate that country herding may be partly driven by investigative herding, market stresses, and investor sentiments.

Keywords:

• Country herding
• Correlated signals
• Brexit
• Investor sentiments

Acknowledgments

The author acknowledges the Startup Research Grant (SRG2018-00115-FBA) support from University of Macau. All errors remain my own responsibility.

Notes

1 As robustness checks, 2 alternatives are used to separate retail from institutional trades. One is the size-based approach classifying trades of less (more) than 1,000 (2,000) shares as retail (institutional) trades. The other follows Barber et al. (2009) to proxy transactions with less (more) than $5,000 ($50,000) for retail (institutional) trades after the adjustment with inflations and exchange rates in each country. Both methods produce the qualitatively similar results as those reported in this article.

2 When computing the correlation, I remove the day with less than 10 countries to ensure that the results are biased by the small sample.

3 The value-weighted correlation on stock-weighted country demand is also computed for robustness checks, which yields the similar results to the equal-weighted counterpart.

4 For robustness data, the Industry Classification Benchmark from FTSE International is also viewed as an alternative to perform the classification. The unreported result is similar to that reported in this article.

5 The market classification is consistent with the MSCI method.