We examine the investment behavior of market participants within different international markets (i.e., US, Hong Kong, Japan, South Korea, and Taiwan), specifically with regard to their tendency to exhibit herd behavior. We find no evidence of herding on the part of market participants in the US and Hong Kong and partial evidence of herding in Japan. However, for South Korea and Taiwan, the two emerging markets in our sample, we document significant evidence of herding. The results are robust across various size-based portfolios and over time. Furthermore, macroeconomic information rather than firm-specific information tends to have a more significant impact on investor behavior in markets which exhibit herding. In all five markets, the rate of increase in security return dispersion as a function of the aggregate market return is higher in up market, relative to down market days. This is consistent with the directional asymmetry documented by McQueen et al. (1996) (McQueen, G., Pinegar, M.A., Thorley, S., 1996. Journal of Finance 51, 889–919).

This paper examines the role of investment opportunities and free cash flow in explaining the source of the wealth effect of international joint ventures. We document that firms with promising investment opportunities have significantly positive response to announcements of international joint venture investments, whereas firms with poor investment opportunities have unfavorable response to such announcements. In contrast, we find that free cash flow does not explain the cross-sectional differences in abnormal returns associated with the announcements of international joint ventures. Thus, our results show support for the investment opportunities hypothesis but no support for the free cash flow hypothesis. These findings hold even after controlling for other potential explanatory variables.