| Summary: | 碩士 === 國立中央大學 === 財務金融研究所 === 97 === To detect investors'' herd behavior under extreme market condutions, I decompose the cross-sectional variance based on the market risk, size and BM using both the daily and monthly frequency. The results support the rational asset pricing model, which implies there are higher dispersions when the market is volatile for its higher sensitive toward its benchmark value. However, by ranking all the market conditions from the extremely down market to the extremely up market, this thesis identified a unique U-shaped curve for cross-sectional dispersion measure. Different from previous studies, after considering the January seasonality and the market turnover ratio, I find that herding is stronger for stocks within small size portfolio and high BM portfolio in January, which leads to the higher comovement of equity returns with groups. Besides, the lower level of past market turnover can predict the higher degree of herd behavior in following period.
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