The effects of national culture and behavioral pitfalls on investors' decision-making: Herding behavior in international stock markets

Abstract

The purpose of this study is to explore the determinants of investor decision-making in international stock markets. Unlike previous literature, this study provides insight into the effects of national culture and behavioral pitfalls on investors' decision-making processes in international stock markets. Its empirical results provide evidence that herding behaviors occur in Confucian and less sophisticated equity markets. Additionally, it finds that some national culture indexes are closely correlated with the exhibition of herding. Finally, it shows that investors' behavioral pitfalls dominate their herding tendency, as shown in cross-sectional absolute deviations of returns.