Herding behaviour and volatility in the Athens Stock Exchange
Abstract
Purpose
This study aims to investigate the existence of herding in the Athens Stock Exchange over the 1995-2010 period and examine its effects on market volatility.
Design/methodology/approach
Herding is examined over portfolios formed on beta and size of the selected stocks. The detection of herding has been done using the state space model of Hwang and Salmon (2004). Four volatility measures are employed.
Findings
The findings depict the presence of herding over two different periods of time. Large differences are observed among the portfolios regarding the herding periods. The results confirm a linear effect of herding on all volatility measures considered. Stocks exhibiting higher levels of herding or adverse herding will also present higher volatility, and from this point of view, herding can be regarded as an additional risk factor.
Originality/value
The fact that herding is considered to be an additional risk factor, can lead market participants and investors to a better understanding of market risk, asset pricing and asset allocation.
Keywords
Acknowledgements
The authors are grateful to Associate Professor Bonie Buchanan, editor of this journal, and to the two anonymous referees for their very constructive comments and suggestions on the previous version of this paper.
Citation
Messis, P. and Zapranis, A. (2014), "Herding behaviour and volatility in the Athens Stock Exchange", Journal of Risk Finance, Vol. 15 No. 5, pp. 572-590. https://doi.org/10.1108/JRF-04-2014-0054
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited