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Abstract: This paper has three main contributions to the literature on investor herds. First, it extends investor herding studies to an emerging yet relatively sophisticated Taiwanese stock market at the sector level by using firm level data. Second, it employs different methodologies designed to test the existence of investor herds to better understand the sources of herd behavior. Third, it discusses the implications of different herding measures for investors exposed to systematic and unsystematic risks. We find that the linear model based on the cross-sectional standard deviation (CSSD) testing methodology yields no significant evidence of herding. However, the non-linear model proposed by and the state space based models of lead to consistent results indicating strong evidence of herd formation in all sectors. We also find that the herding effect is more prominent during periods of market losses. Our results suggest limited diversification opportunities for investors in this market, especially during periods of market losses when diversification is most needed. Further research is necessary to see whether similar findings hold for other emerging markets. [ABSTRACT FROM AUTHOR]

Abstract: Portfolio selection is a resource allocation problem in a finance market. The investor’s asset optimization requires the distribution of a set of capital (resources) among a set of entities (assets) with the trade-off between risk and return. The ANN with nonlinear capability is proven to solve a large-scale complex problem effectively. It is suitable to solve NP-hard resource allocation problem. However, the traditional ANN model cannot guarantee the summation of produced investment weight always preserves 100% in output layer. This article introduces a resource allocation neural network model to optimize investment weight of portfolio. This model will dynamically adjust the investment weight as a basis of 100% of summing all of asset weights in the portfolio. The experimental results demonstrate the feasibility of optimal investment weights and superiority of ROI of buy-and-hold trading strategy compared with benchmark Taiwan Stock Exchange (TSE). [Copyright &y& Elsevier]