| Summary: | 碩士 === 國立政治大學 === 國際經營與貿易研究所 === 102 === In this paper, we apply the herding index constructed by Hwang and Salmon (2010) in analyzing the overall herding behavior in Taiwan’s stock market. Unlike previous studies, the new index measures the degree of herding by the variation of systematic risk β, and hence avoids the contamination from the idiosyncratic risk. With its parametric setup, it also facilitates easier implementation of statistical inference and hypotheses testing. Our empirical results show that herding behavior not only pervasively exists in Taiwan’s stock market, the degree of herding also intensifies as the market sentiment is heating up and becomes more positive. In addition, with the overnight lending rate as the proxy variable for Central bank’s monetary policy, we show that an expansionary monetary policy strengthens market sentiment, thereby exacerbates the herding behavior in stock market more significantly with a stronger policy magnitude. A reasonable conjecture is that Central bank's policy attitude provides investors a unifying benchmark for predicting the future development of business cycles, synchronizes their investment directions, thereby increases the degree of overall market herding. In particular, Central bank's monetary policy seems to be more influential on stock market’s herding behavior during recession periods.
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