Herd behaviors in the stock and foreign exchange markets

The herd behavior of returns for the won–dollar exchange rate and the Korean stock price index (KOSPI) is analyzed in Korean financial markets. It is reported that the probability distribution P(R) of returns R for three types of herding parameter satisfies the power-law behavior P(R) R−β with the exponents β=2.2 (the won–dollar exchange rate) and 2.4 (the KOSPI). When the herding parameter h satisfies h 2.33, the crash regime in which P(R) increases with the increasing R appears. The active state of the transaction exists to decrease for h>2.33. Especially, we find that the distribution of normalized returns shows a crossover to a Gaussian distribution when the time step Δt=252 is used. Our results will also be compared to the other well-known analyses.