Does herding behavior matter in investment management and perceived market efficiency? Evidence from an emerging market
ISSN: 0025-1747
Article publication date: 25 May 2022
Issue publication date: 8 August 2022
Abstract
Purpose
This article aims to clarify the mechanism by which herding behavior influences perceived market efficiency, investment decisions and the performance of individual investors actively trading on the Pakistan Stock Exchange (PSX).
Design/methodology/approach
The deductive approach was used in this study, as the research is based on the theoretical framework of behavioral finance. A questionnaire and cross-sectional design were employed to collect data from the sample of 309 investors trading on the PSX. The collected data were analyzed using SPSS and AMOS graphics software. Hypotheses were tested using structural equation modeling (SEM).
Findings
The article provides further empirical insights into the relationship between herding behavior and investment management and perceived market efficiency. The results suggest that herding behavior has a markedly negative influence on perceived market efficiency and investment performance, while positively influencing the decision-making of individual investors.
Originality/value
The current study is the first to focus on links between herding behavior and investment management activities and perceived market efficiency. This article enhances the understanding of the role that herding behavior plays in investment management and, more importantly, it improves understanding of behavioral aspects and their influence on investment decision-making in an emerging market. It also adds to the literature in the area of behavioral finance, specifically the role of herding behavior in investment management; this field is in its initial stage, even in developed countries, while little work has been done in developing countries.
Keywords
Acknowledgements
The authors thank the anonymous reviewers for their valuable feedback and comments during the review process. The authors are also incredibly grateful to Professor Dr. Brandon Randolph-Seng, editor-in-chief, for his constructive feedback and expertise in helping to finalize this paper. His excellent and patient editorial assistance was valuable across the review process.
Citation
Ahmad, M. and Wu, Q. (2022), "Does herding behavior matter in investment management and perceived market efficiency? Evidence from an emerging market", Management Decision, Vol. 60 No. 8, pp. 2148-2173. https://doi.org/10.1108/MD-07-2020-0867
Publisher
:Emerald Publishing Limited
Copyright © 2022, Emerald Publishing Limited