Individualism, synchronized stock price movements, and stock market volatility
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 29 May 2019
Issue publication date: 31 July 2019
Abstract
Purpose
The purpose of this paper is to examine the impact of national culture on herding behavior across international financial markets.
Design/methodology/approach
The relation between national culture and investor behavior, 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–May 2012.
Findings
The author finds that nations with lower values of individualistic culture are more likely to have a higher number of synchronized stock price movements. Further, the correlation between stock price movements apparently increases 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.
Originality/value
The empirical results in this paper indicate that a portion of the difference in market level volatility is attributed to the investor bias of different cultures. Investor behavior bias creates excess volatility that drives stock prices away from fundamentals. This impact is strong in nations with lower individualistic culture. The result from this research could also have a wide implication in the investment industry.
Keywords
Citation
Zhan, F. (2019), "Individualism, synchronized stock price movements, and stock market volatility", International Journal of Managerial Finance, Vol. 15 No. 3, pp. 371-403. https://doi.org/10.1108/IJMF-10-2018-0305
Publisher
:Emerald Publishing Limited
Copyright © 2019, Emerald Publishing Limited