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Article
Publication date: 18 July 2022

Achraf Ghorbel, Yasmine Snene and Wajdi Frikha

The objective of this paper is to investigate the pandemic’s function as a driver of investor herding in international stock markets, given that the current coronavirus disease…

Abstract

Purpose

The objective of this paper is to investigate the pandemic’s function as a driver of investor herding in international stock markets, given that the current coronavirus disease 2019 (COVID-19) crisis has caused a large rise in uncertainty.

Design/methodology/approach

The paper investigates the presence of herding behavior among the developed and BRICS (Brazil, Russia, India, China and South Africa) stock market indices during the COVID-19 crisis, by using a modified Cross-Sectional Absolute Deviation (CSAD) measure which is considered a proxy for herding and the wavelet coherence (WC) analysis between CSAD that captures the different inter-linkages between stock markets.

Findings

Using the CSAD model, the authors' findings indicate that the herding behavior of investors is present in stock markets during the four waves of COVID-19 crisis. The results also demonstrate that the transaction volume improve the herding behavior in the stock markets. As for the news concerning the number of cases caused by the pandemic, the results show that the pandemic does not stimulate herding; however, the number of deaths caused by this pandemic turns out to be a great stimulator of herding. By using the WC analysis, the authors' findings indicate the presence of herding behavior between the Chinese and stock markets (developed and emerging), especially during the first wave of the crisis and the presence of herding behavior between the Indian and stock markets (developed and emerging) in the medium and long run, especially during the third wave of the COVID-19 crisis.

Originality/value

The authors' study is among the first that examines the influence of the recent COVID-19 pandemic as a stimulator of herding behavior between stock markets. The study also uses the WC analysis next to the CSAD model to obtain robust results. The authors' results are consistent with the mental bias of behavioral finance where herding behavior is considered effective in volatility predictions and decision-making for international investors, specifically during the COVID-19 crisis.

Article
Publication date: 16 February 2024

Noura Metawa, Saad Metawa, Maha Metawea and Ahmed El-Gayar

This paper deeply investigates the herd behavior of the Egyptian mutual funds under changing and different conditions of the market pre- and post-events and compares the impact of…

Abstract

Purpose

This paper deeply investigates the herd behavior of the Egyptian mutual funds under changing and different conditions of the market pre- and post-events and compares the impact of asymmetric risk conditions on the herding behavior of the Egyptian mutual funds in both up and down markets.

Design/methodology/approach

We test for the existence of herding for the whole period from 2003 to 2022, as well as for the pre-and post-different Egyptian uprising periods. We employ two well-known models, namely the cross-sectional standard deviation (CSSD) and cross-sectional absolute deviation (CSAD) models. Additionally, we use the quantile regression approach.

Findings

We find that the behavior of mutual funds does not change following the different political and social events. For the whole period, we find evidence of herding behavior using only the model of CSAD in down-market conditions. We generalize our finding to be evidence of the existence herding behavior in different quantiles, under only the down market in specific points’ pre, post or both given events throughout the whole series. Conversely, during the upper market, we show a full absence of herding behavior considering all different quantiles. When the market is down, managers are afraid of the condition of uncertainty, neglecting their own private information, avoid acting independently and consequently, following other mutual funds. When the market is up, managers become rational and act fully independent.

Research limitations/implications

Future research should delve deeper into the drivers of herding behavior, assess its longer-term effects, develop risk management strategies and consider regulatory measures to mitigate the potential negative impact on mutual fund performance and investor outcomes.

Practical implications

The study reveals that the behavior of mutual funds remains consistent despite various political and social events, suggesting a degree of resilience in their investment strategies. The research uncovers evidence of herding behavior in both high and low quantiles, but exclusively in down markets. In such conditions of market decline, fund managers appear to forsake their private information, exhibiting a tendency to follow the crowd rather than acting independently.

Social implications

The study reveals that the behavior of mutual funds remains consistent despite various political and social events, suggesting a degree of resilience in their investment strategies. The research uncovers evidence of herding behavior in both high and low quantiles, but exclusively in down markets. In such conditions of market decline, fund managers appear to forsake their private information, exhibiting a tendency to follow the crowd rather than acting independently. Future research should delve deeper into the drivers of herding behavior, assess its longer-term effects, develop risk management strategies and consider regulatory measures to mitigate the potential negative impact on mutual fund performance and investor outcomes.

Originality/value

The paper investigates the herd behavior of the Egyptian mutual funds under asymmetric risk conditions, the study follows the spectrum of the herding behavior analysis and Egyptian mutual funds, extending the research with imperial analysis of market conditions pre- and post-events including currency floating, COVID-19 and political elections. The study gives substantial recommendations for policymakers and investors in emerging markets mutual funds.

Details

The Journal of Risk Finance, vol. 25 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

Book part
Publication date: 28 September 2020

Ahmed Bouteska

This chapter examines the existence of dynamic herding behavior by Tunisian investors in the Tunisia stock market during the revolution period of 2011–2013. The sample covers all…

Abstract

This chapter examines the existence of dynamic herding behavior by Tunisian investors in the Tunisia stock market during the revolution period of 2011–2013. The sample covers all Tunindex daily returns as a proxy for the Tunisia stock exchange index over the period 2007–2018. The author modifies the cross-sectional absolute deviation model to include all market conditions (bull and bear markets) and the geopolitical crisis effect corresponding to the Tunisian Jasmine revolution during 2011–2013, and show that herding is indeed not present in the Tunisia stock market including during its turmoil periods. These findings imply that the Tunisian emerging financial market became more vulnerable to adverse herding behavior after the revolution. There is also a clear implication for capitalist firms and angel investors in Tunisia that adverse herding behavior tends to exist on days of higher uncertainty and information asymmetry.

Details

Emerging Market Finance: New Challenges and Opportunities
Type: Book
ISBN: 978-1-83982-058-8

Keywords

Article
Publication date: 11 June 2018

Imed Medhioub and Mustapha Chaffai

The purpose of this paper is to examine the herding behavior in GCC Islamic stock markets.

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Abstract

Purpose

The purpose of this paper is to examine the herding behavior in GCC Islamic stock markets.

Design/methodology/approach

The authors followed the methodology developed by Chiang and Zheng (2010) to test herding behavior. Cross-sectional tests have been considered in this paper. The authors use both OLS and GARCH estimations to examine herding behavior by using a sample of GCC Islamic stock markets.

Findings

By applying monthly data for the period between January 2006 and February 2016 for five Islamic GCC stock returns (Bahrain, Kuwait, Qatar, Saudi Arabia and UAE), results suggest a significant evidence of herd behavior in Saudi and Qatari Islamic stock markets only. When the authors take into account the existence of asymmetry in herd behavior between down- and up-market periods, evidence of herding behavior during down market periods in the case of Qatar and Saudi Arabia was found. In addition, the authors found that Kuwaiti and Emirates Islamic stock markets herd with the local conventional stock market, showing the interdependencies between Islamic and conventional markets.

Research limitations/implications

In this paper, the authors found an absence of herding behavior in some Islamic stock markets (Bahrain, Kuwait and Emirates). This is not the result of Shariah guidelines in these Islamic markets, but this is mainly due to the weak oscillations of returns which are very close to zero. In our future research, the authors could apply daily data and compare the results to those obtained in this paper by using monthly data.

Originality/value

This paper provides a practical framework in order to analyze the herding behavior concept for GCC Islamic stock markets. Its originality consists of linking the herding behavior to ethics and morality to verify whether the properties and guidelines of Islam are respected in Islamic stock markets. To the best of the authors’ knowledge, no other paper has treated the case of herding behavior in Islamic stock markets and taking into account the possible influence of the conventional market on the Islamic stock market that may impact herding behavior.

Details

Review of Behavioral Finance, vol. 10 no. 2
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 7 April 2023

João Paulo Vieito, Christian Espinosa, Wing-Keung Wong, Munkh-Ulzii Batmunkh, Enkhbayar Choijil and Mustafa Hussien

It has been argued in the literature that structural changes in the financial markets, such as integration, have the potential to cause herding behavior or correlated behavioral…

Abstract

Purpose

It has been argued in the literature that structural changes in the financial markets, such as integration, have the potential to cause herding behavior or correlated behavioral patterns in traders. The purpose of this study is to investigate whether there is any financial herding behavior in the Latin American Integrated Market (MILA), a transnational stock market composed of Chile, Peru, Colombia and Mexico stock exchanges and whether there is any ARCH or GARCH effect in the herding behavior models.

Design/methodology/approach

This study uses the modified return dispersion approach on daily index return data. The sample period is from January 03, 2002 to May 07, 2019. The data are obtained from the MILA database. To count time-varying volatilities in herding models, the authors run ARCH family regression with GARCH (1,1) settings. Hwang and Salmon (2004) model is used as a robustness test.

Findings

The authors found strong herding behavior under the general market conditions and moderate and partial herding behavior under some specified markets circumstances, such as bull and bear markets and high-low volatility states. Moreover, the pre-MILA period exhibits more herding behavior than the post-MILA period. The empirical results show that most of the ARCH and GARCH effects are statistically significant, implying that the past information of stock returns and market volatility significantly affect the volatility of following periods, which can also explain the formation of herding tendency among investors. Finally, the results of the robustness tests (Hwang and Salmon, 2004) confirm herding in all periods, except full sample period for Mexico and post-MILA period for Mexico and Colombia.

Research limitations/implications

This study investigates the herding behavior in the MILA market in terms of market return, volatility and timing. A limitation of the paper is that the authors have not included other factors on the formation of herding behavior, such as macroeconomic factors, effects of regional or international markets and policy influences. The authors will explore the issue in the extension of the paper.

Practical implications

As MILA is the first virtual integration of stock exchanges without merging, the study provides useful findings and draws good inferences of herding behavior in the MILA market in terms of market return, volatility and timing which are useful for academics, investors and policymakers in their investment and decision makings.

Social implications

The paper provides useful findings and draws good inferences of herding behavior in the MILA market in terms of market return, volatility and timing which are not only useful in practical implications, but also in social implications.

Originality/value

This study contributes to the herding literature by examining four different hypotheses in respect of the unique case of transnational stock exchange without fusions or corporate mergers, where each market maintains its independence and regulatory autonomy. The authors also contribute to the literature by including both ARCH and GARCH effects in the herding behavioral models along the Hwang and Salmon (2004) approach.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 May 2022

Palak Dewan and Khushdeep Dharni

The study examines herding in the Indian stock and commodity futures market including agricultural, metal and energy commodities. Herding is studied under various market…

Abstract

Purpose

The study examines herding in the Indian stock and commodity futures market including agricultural, metal and energy commodities. Herding is studied under various market conditions: rising and declining, high and low volatility. The study also examines spillover effects of herding.

Design/methodology/approach

The study adapts the cross-sectional absolute deviation model given by Chang et al. (2000) to examine herding in Indian stock and commodity futures markets.

Findings

The results of the study indicate absence of herding among commodity futures under all market conditions except for the declining market where herding is present among energy futures. The investors investing in agricultural and energy commodities have a higher tendency to herd during high volatility days as compared to low volatility days. Further, the study of herding spillover effects indicates that the price fluctuations in metal commodities affect herding in agricultural and energy commodities.

Research limitations/implications

The results can help market participants to diversify the risk by investing in agricultural, metal and energy futures along with the stocks.

Originality/value

Majority of the previous studies explore herding among stocks and ignore commodities especially agricultural commodities. This study attempts to fill the gap by studying herding among various commodity futures. To the best of our knowledge this is the first study to explore herding spillover effects in the Indian stock and commodity futures market.

Details

Journal of Agribusiness in Developing and Emerging Economies, vol. 13 no. 5
Type: Research Article
ISSN: 2044-0839

Keywords

Article
Publication date: 23 February 2024

Eminda Ishan De Silva, Gayithri Niluka Kuruppu and Sandun Dassanayake

The non-fungible token (NFT) market had undergone dramatic growth and a sudden decline during 2021–2022. The market experienced a surge in prices in late 2021 and early 2022, with…

Abstract

Purpose

The non-fungible token (NFT) market had undergone dramatic growth and a sudden decline during 2021–2022. The market experienced a surge in prices in late 2021 and early 2022, with NFTs being sold at inflated prices. Despite this, by April 2022, the market underwent a correction, and the prices of NFTs returned to more reasonable levels. This can be a result of imitating the actions or judgments of a larger group, which is not systematically proven yet. Therefore, this study systematically investigates the applicability of herding behavior in the NFT market.

Design/methodology/approach

This research employs cross-sectional absolute deviation (CSAD) of returns and ordinary least squares (OLS) to test herding behavior with moving time windows of 10, 20 and 30 days based on the sales data collected from public interface of OpenSea between July 1, 2021 and June 30, 2022. Additionally, NFT-related keyword usage analysis is done for the detected herding periods.

Findings

As per the results of the data analyzed, herding behavior was evidenced using 10-, 20- and 30-day time windows from July 1, 2021 to June 30, 2022because of media movement. The findings revealed that this behavior was present and aligned with the overall behavior of the market.

Originality/value

This study introduces CSAD to examine herding behavior patterns within the NFT market. Complementing this method, keyword count-based analysis is employed to identify the underlying causes of herding behavior. Through this comprehensive approach, this study not only uncovers the roots of herding behavior but also offers an assessment of the time windows during which it occurs, considering the plausible socioeconomic contexts that influence these trends.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 17 September 2019

Kalugala Vidanalage Aruna Shantha

The purpose of this paper is to examine the evolutionary nature of herding phenomenon in the context of a frontier stock market, the Colombo Stock Exchange of Sri Lanka.

Abstract

Purpose

The purpose of this paper is to examine the evolutionary nature of herding phenomenon in the context of a frontier stock market, the Colombo Stock Exchange of Sri Lanka.

Design/methodology/approach

This study applies the cross-sectional absolute deviation methodology for daily frequencies of data of all the common stocks listed during the period from April 2000 to March 2018. The regression coefficients are estimated by using both the ordinary least square and the quantile regression procedures.

Findings

The findings reveal significant changes to the pattern of herding over different market periods, each with specific characteristics. Herding is strongly evident in up and down market days in the 2000-2009 period, during which the market was highly uncertain with the impact of the political instability of the country due to the Civil War on the stock trading. Even after this Civil War period, herd tendency is strongly manifested toward the up market direction as a result of the investors’ optimism about the country’s economy and political stability, which caused to a speculative bubble in the market. After that, it is turned into negative herding due to the panic selling occurred in view of the uncertainty of the inflated prices, which led to a market crash. Notably, herding appears to be consistently absent over the period after the crash, despite the presence of herd motives such as high market uncertainties triggered by political instability and economic crisis during that period.

Research limitations/implications

The findings suggest that herd behavior is an evolving phenomenon in financial markets. Consistent with the adaptive market hypothesis, the absence of herding evident after the market crash could be attributed to the investors’ learning of the irrationality of herding/negative herding for adapting to market conditions. As a result, herding and negative herding tendencies declined and disappeared at the aggregate market level.

Originality/value

This study contributes to the literature by providing novel evidence on the evolutionary nature of behavioral biases, particularly herding, as predicted by the adaptive market hypothesis. With the application of the quantile regression procedure, in addition to customary used ordinary least squares approach, it also provides robust evidence on this phenomenon.

Content available
Book part
Publication date: 28 September 2020

Abstract

Details

Emerging Market Finance: New Challenges and Opportunities
Type: Book
ISBN: 978-1-83982-058-8

Book part
Publication date: 17 February 2023

Udayan Karnatak

Industry 5.0 has shown a new approach to integrating enterprises, particularly fintech firms. It would be interesting to see whether we are ready to implement Industry 5.0 across…

Abstract

Industry 5.0 has shown a new approach to integrating enterprises, particularly fintech firms. It would be interesting to see whether we are ready to implement Industry 5.0 across domains and enterprises while there are still obstacles to overcome, such as cybercrime impacting fintech organizations. Using empirical analysis of the fintech stocks that make up the KBW index, the author uncovered the influence of cybercrime on investor herding behavior in a highly interdependent environment provided by Industry 4.0. The cross-sectional standard deviation has been shown to rise after a cyber attack on a company anywhere on the globe. Furthermore, the author established the long-term equilibrium of the volatilities of gold and bitcoin returns, as well as the volatility of Keefe, Bruyette, and Woods (KBW) returns, in the sample after the firms’ cyber assault using Vector Auto Regressive (VAR) and Vector error correction model (VECM) models. Following the cyber assault, there is a decrease in the volatility of KBW returns while the volatility of bitcoin returns rises, suggesting a volatility transfer from one market to the other. These results show that during times of crisis, investors should be more careful in their approach to investment diversification, and any Industry 5.0 implementations should be done with the constraints in mind.

Details

Transformation for Sustainable Business and Management Practices: Exploring the Spectrum of Industry 5.0
Type: Book
ISBN: 978-1-80262-278-2

Keywords

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