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Article
Publication date: 14 February 2024

Dorra Messaoud and Anis Ben Amar

Based on the theoretical framework, this paper analyzes the sentiment-herding relationship in emerging stock markets (ESMs). First, it aims to examine the effect of investor

Abstract

Purpose

Based on the theoretical framework, this paper analyzes the sentiment-herding relationship in emerging stock markets (ESMs). First, it aims to examine the effect of investor sentiment on herding. Second, it seeks the direction of causality between sentiment and herding time series.

Design/methodology/approach

The present study applies the Exponential Generalized Auto_Regressive Conditional Heteroskedasticity (EGARCH) model to capture the volatility clustering of herding on the financial market and to investigate the role of the investor sentiment on herding behaviour. Then the vector autoregression (VAR) estimation uses the Granger causality test to determine the direction of causality between the investor sentiment and herding. This study uses a sample consisting of stocks listed on the Shanghai Composite index (SSE) (348 stocks), the Jakarta composite index (JKSE) (118 stocks), the Mexico IPC index (14 stocks), the Russian Trading System index (RTS) (12 stocks), the Warsaw stock exchange General index (WGI) (106 stocks) and the FTSE/JSE Africa all-share index (76 stocks). The sample includes 5,020 daily observations from February 1, 2002, to March 31, 2021.

Findings

The research findings show that the sentiment has a significant negative impact on the herding behaviour pointing out that the higher the investor sentiment, the lower the herding. However, the results of the present study indicate that a higher investor sentiment conducts a higher herding behaviour during market downturns. Then the outcomes suggest that during the crisis period, the direction is one-way, from the investor sentiment to the herding behaviour.

Practical implications

The findings may have implications for universal policies of financial regulators in EMs. We have found evidence that the Emerging investor sentiment contributes to the investor herding behaviour. Therefore, the irrational investor herding behaviour can increase the stock market volatility, and in extreme cases, it may lead to bubbles and crashes. Market regulators could implement mechanisms that can supervise the investor sentiment and predict the investor herding behaviour, so they make policies helping stabilise stock markets.

Originality/value

The originality of this paper lies in investigate the sentiment-herding relationship during the Surprime crisis and the Covid-19 epidemic in the EMs.

Details

EuroMed Journal of Business, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1450-2194

Keywords

Book part
Publication date: 4 July 2019

Çağatay Başarir and Özer Yilmaz

Starting in the 1980s, financial liberalization and technological developments have enabled individual investors to participate in financial markets and carry out easy…

Abstract

Starting in the 1980s, financial liberalization and technological developments have enabled individual investors to participate in financial markets and carry out easy transactions. With these developments, academics began to wonder how the individual investors decide to invest and what factors affect these decisions.

According to traditional finance theory, it is suggested that markets are efficient and investors show rational behaviors in their financial purchasing decisions. However, in many studies conducted in recent years, it was determined that investors included emotional elements as well as rational elements in their decision-making process and therefore exhibited irrational behaviors by believing rumors instead of real information. It is thought that many factors such as personal characteristics, psychological factors, demographic and socio-economic factors play a role in the behavior of investors in purchasing a financial product.

In this study, the importance of herd behavior, which is one of the psychological factors that play a very important role in financial markets, on financial product purchasing process is examined in the light of the behavioral finance theory. It is thought that information included in the study will be useful for researchers who want to study herd behavior and for those who are interested in the subject.

Article
Publication date: 30 August 2022

Godwin Musah, Daniel Domeher and Imhotep Alagidede

The purpose of this paper is to investigate investor herding behaviour and the effect of presidential elections on investor herding behaviour in African stock markets at the…

Abstract

Purpose

The purpose of this paper is to investigate investor herding behaviour and the effect of presidential elections on investor herding behaviour in African stock markets at the sector level.

Design/methodology/approach

The study segregates listed firms into financial, consumer goods, consumer services and basic materials sectors and uses the cross-sectional absolute deviation approach as a metric of detecting herding in each of the sectors. The authors extend the model to tease out the effect of presidential elections on investor herding behaviour.

Findings

The study reveals that sectoral differences are fundamental to the evolution of herding. Herding is prominent in a financial services sector dominated by banks. The phenomenon also prevails in markets with smaller consumer goods and services sectors. A post-presidential election effect on investor herding is found for the consumer goods and services sectors of Ghana and a pre-presidential election effect is documented in Nigeria's consumer services sector. The authors conclude that post-presidential election effect is as a result of political connections whilst a pre-presidential election effect is attributable to political business cycles.

Research limitations/implications

The study is based on four African countries due to data constraints. Nonetheless, the study is the first in Africa to the best of the authors' knowledge, and the results are very solid and have a lot of practical and policy implications.

Practical implications

The study has implications for investors as it guides investment behaviour in pre- and post-presidential election periods.

Originality/value

Past studies on investor herding behaviour in African stock markets have largely concentrated on the aggregate market. Knowledge on sectoral differences in investor herding is almost non-existent for African stock markets. Furthermore, premised on the fact that stock markets react to presidential elections, there is no known study that have attempted to examine the effect of presidential elections on investor herding behaviour. This paper contributes to the literature by providing evidence on sectoral differences in investor herding behaviour and the effect of presidential elections on sectoral herding behaviour.

Details

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

Keywords

Article
Publication date: 25 May 2022

Maqsood Ahmad and Qiang Wu

This article aims to clarify the mechanism by which herding behavior influences perceived market efficiency, investment decisions and the performance of individual investors

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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.

Details

Management Decision, vol. 60 no. 8
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 30 July 2019

Wenjie Zhang, Yun Xu and Haichao Zheng

Based on the theory of customer citizenship behavior (CCB), the purpose of this paper is to explore the antecedents and consequences of investor citizenship behavior in the field…

Abstract

Purpose

Based on the theory of customer citizenship behavior (CCB), the purpose of this paper is to explore the antecedents and consequences of investor citizenship behavior in the field of crowdfunding and have an in-depth study of the interaction effect between investors’ perceptions of novelty and investors’ motivations.

Design/methodology/approach

Based on the CCB theory and self-determination theory, the authors develop hypotheses and collect questionnaire data (a sample of 226 crowdfunding investors) from crowdfunding websites to test models and get conclusions by SPSS and smartPLS 2.0.

Findings

The results indicate that internal and external motivations significantly influence investors’ citizenship behavior, which further affects investors’ stickiness intentions. Furthermore, results show that investors’ perceptions of novelty moderate the relationships between internal/external motivations and citizenship behaviors.

Originality/value

This paper offers an in-depth explanation of the citizenship behaviors in crowdfunding, which could be an example for studying the motivations of investors’ citizenship behaviors and could also serve as a starting point to introduce the stickiness intention theory of e-commerce and virtual community into crowdfunding area. In addition, this study also made an empirical analysis of how the perceived project novelty affects the relationships between investors’ motivations and citizenship behaviors.

Details

Online Information Review, vol. 43 no. 4
Type: Research Article
ISSN: 1468-4527

Keywords

Article
Publication date: 26 April 2019

Sharda Kumari, Bibhas Chandra and J.K. Pattanayak

The purpose of this paper is to investigate the relationships between personality, motivating factors and herding behaviour of individual investors. Investors’ personality has…

1041

Abstract

Purpose

The purpose of this paper is to investigate the relationships between personality, motivating factors and herding behaviour of individual investors. Investors’ personality has been classified consonant to the personality traits (compliant, aggressive and detached) encapsulated in Horney’s tripartite model.

Design/methodology/approach

To carry out this study, the author surveyed 363 individual investors of the Indian stock market using a structured questionnaire. Structural equation modelling is used to empirically test the relationships between personality, three motivating factors (cognitive capability, emotional factors and social factors) and herding behaviour.

Findings

The result reveals that, expect compliant personality, none shows proclivity towards herding behaviour. Investors possessing compliant personality are more influenced by social motivating factors; however, cognitive factor motivates aggressive personality, inhibiting herding behaviour. Furthermore, investors having detached personality are not influenced by any motivating factors of herding.

Research limitations/implications

The limitation is the difficulty in generalizing the results to overall country populations as the Indian stock market has a huge turnover every day, and the author’s survey consisted of only small sample of individual investors.

Practical implications

The outcomes of this study could possibly unveil a new insight to discern the behaviour of individual investors in the Indian stock market.

Originality/value

The influences of personality on investment choices have been investigated before, but the influence of personality specifically on herding behaviour has not being adequately investigated in an emerging economy like India, as very scanty literature is available on the influence of personality on herding behaviour. The study addresses this gap and further explores the association of personality with different motivating factors that cause herding bias.

Details

Kybernetes, vol. 49 no. 2
Type: Research Article
ISSN: 0368-492X

Keywords

Article
Publication date: 17 June 2020

Luminița Nicolescu and Florentin Gabriel Tudorache

This paper aims to make an analysis of investment behaviour in mutual funds, by looking at different investment decision influencers and trying to identify the extent to which the…

Abstract

Purpose

This paper aims to make an analysis of investment behaviour in mutual funds, by looking at different investment decision influencers and trying to identify the extent to which the investment decision is knowledge-based. The paper has three main purposes, namely, to assess the degree to which the considered factors influence investment decision-making in young capital markets from Central and Eastern Europe (CEE); to compare the investment behaviour in the three considered countries; and to characterise investment behaviour in periods of economic turbulence.

Design/methodology/approach

The researchers considered a model of investment behaviour comprising six influencing factors. Inferential statistics through multiple linear regression was applied using the MATLAB R2014a software. The decision to invest was measured by the flow of new capital attracted by the fund (dependent variable) and the considered influencing factors (independent variables) were: the size of the fund, the risk associated to the fund, the growth of the fund, the growth of the fund category, the performance of the fund in its category. The research was conducted in Romania, Slovakia and Hungary. The period of study included the global economic crisis of 2007-2008.

Findings

The results illustrated that all considered factors do have an influence on the investment behaviour of investors in CEE, but with different levels of impact. The study concludes that the investment decision is partially knowledge-based, as investors in the region consider only some of the available information when making the decision to invest. Investment behaviour of investors in CEE is rather similar than dissimilar when deciding to invest in mutual funds. However, based on the differences between countries, it can be stated that the Hungarian investor is more mature and more informed than the others, when making investment decisions.

Originality/value

The study contributes to the exiting literature through the analysis of investment behaviour in young capital markets that are less studied in the literature. The limited number of studies considering mutual funds, usually comprise one fund category, while the present research considers all five most prevalent mutual funds categories for the studied period. It also contributed by collecting data from a less studied geographical region, CEE with three specific case studies, namely, Romania, Slovakia and Hungary that are looked at in a comparative manner.

Details

Kybernetes, vol. 50 no. 10
Type: Research Article
ISSN: 0368-492X

Keywords

Abstract

Details

Investment Behaviour
Type: Book
ISBN: 978-1-78756-280-6

Book part
Publication date: 21 November 2018

Caroline O. Ford, Bradley E. Lail and Velina Popova

Earnings management is a common term in the academic community and is likely understood by managers and professional investors, but how the large community of non-professional…

Abstract

Earnings management is a common term in the academic community and is likely understood by managers and professional investors, but how the large community of non-professional investors interprets this term is less clear. We examine non-professional investors’ attitudes toward earnings management and their resulting investing behaviors using a 2 × 2 mixed design. We manipulate investor role (prospective vs current) between participants and the method of earnings management within participants. We believe that different investment goals (prevention vs promotion) between current and prospective investors should lead to different investing behaviors. Consistent with our expectations, we find that current investors are more likely to maintain an equity than prospective investors are to invest in the same opportunity. Further, the consistent link between investors’ attitudes and actual investment behavior is only present for prospective investors. The prevention goal drives the current investors to maintain their investment, while the prospective investors remain more objective and focus on a goal of promotion. Importantly, prior research examining investor attitude toward earnings management has failed to link investors’ attitudes with actual investing decisions; our study attempts to fill this void by examining attitudes toward earnings management as well as subsequent investment behavior.

Article
Publication date: 14 June 2022

Parvathy S. Nair, Atul Shiva, Nikhil Yadav and Priyanka Tandon

The purpose of this study is to investigate the influence of mobile applications on investment decisions by retail investors in stocks and mutual funds. This study focuses on how…

1350

Abstract

Purpose

The purpose of this study is to investigate the influence of mobile applications on investment decisions by retail investors in stocks and mutual funds. This study focuses on how mobile technologies are applied on mobile apps by retail investors for e-trading in emerging financial markets.

Design/methodology/approach

The study explored predictive relevance for the adoption behavior of retail investors under the Unified Theory of Acceptance and Use of Technology (UTAUT) framework. Further, goal contagion theory was applied to investigate the adoption behavior of investors towards e-trading. An adapted questionnaire was used to collect the date from April to June 2021 and data analysis was performed on 507 usable responses. The methodology adopted in this study is variance based partial least square structural equational modelling (PLS-SEM). Additionally, the study explains important and performing constructs based on the response of retail investors towards mobile app usage for investment decisions.

Findings

The study shows that effort expectancy, performance expectancy followed by perceived return were the primary determinants of behavioral intentions to use mobile applications by retail investors for e-trading. Further, habit of investors determined the adoption behavior of investors towards mobile apps. Additionally, the study revealed that perceived risk is not an important aspect for retail investors in comparison to perceived return.

Research limitations/implications

The study in future can address to the aspect of personality traits of retail investors for technology adoption for investment decisions. Further investigation is required on addressing unobserved heterogeneity of retail investors towards technology adoption process in emerging financial markets.

Practical implications

The study provides theoretical and practical implications for retail investors, financial advisors and technology companies to understand the behavioral pattern and mobile apps adoption behavior of retail investors in emerging financial market. The findings in the study will help broking firms to sensitize their clients for effective use of their respective mobile apps for e-trading purposes. The study will strengthen the knowledge of financial advisors to understand investment behavior of retail investors in emerging financial markets.

Originality/value

This study unfolds a novel framework of research to understand the technology adoption pattern of retail investors for e-trading by mobile applications in emerging financial markets. The present study provides significant understanding in the domain of technology adoption by retail investors under behavioral finance environment.

Details

Benchmarking: An International Journal, vol. 30 no. 5
Type: Research Article
ISSN: 1463-5771

Keywords

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