Herd Behaviour in Financial Markets: Evidence from the Technology Sector
|Author:||Bc. Jaroslav Máca|
|Year:||2022 - summer|
|Leaders:|| PhDr. Jiří Kukačka Ph.D.
|Work type:|| Bachelors
|Awards and prizes:|
|Abstract:||This thesis provides an evidence of herd behaviour in financial markets with an emphasis on the
technology sector. The adjusted closing prices for the NASDAQ-100 index constituents are analysed on
a daily basis during the period 2011–2020. Regarding methodology, the commonly utilized measures
of cross-sectional standard deviation of returns and of cross-sectional absolute deviation of returns
are considered. The examination reveals no evidence of herd behaviour, even when filtering trading
sessions based on extraordinary market volatility or trading volume. However, a closer look at 2020,
in which financial markets movements were heavily affected by the ongoing COVID-19 pandemic,
shows that herd behaviour contributed to the sharp and significant crash as well as to the subsequent
skyrocketing recovery. Furthermore, this thesis presents an innovative way of using an external factor
in regression models. Due to their dominant position, the so-called technology giants are excluded
from the US stock market and they newly constitute the world market. This specification reveals that
the dispersions of the technology giants are contagiously amplified to the rest of the technology sector.
Therefore, investors should be aware of the risks associated with a possible cooling of the entire
technology sector following the expected interest rate hikes by the Federal Reserve in the USA.