An Analysis of Herding Behavior in the Stock Market: A Case Study of the Asean-5 and the United States

Rahman, R. Eki; Ermawati, Ermawati

doi:10.21098/bemp.v23i3.1362

Cited by 11 publications

(10 citation statements)

References 55 publications

(82 reference statements)

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“…According to Bodea and Hicks (2015), a higher CBI index is a positive signal to encourage investment since the more credible the central bank is perceived to be in setting and implementing monetary policy, the more independent it is. This view is supported by theoretical and empirical analysis of Smets (2014), Belke and Beckmann (2015), Sari et al (2017), and Rahman and Ermawati (2020), that optimal monetary policy increases stock market. In developing countries, international financial integration causes financial market, particularly stock market, become the most favorite instrument for investors.…”

Section: Introductionmentioning

confidence: 87%

Measuring Response of Stock Market to Central Bank Independence Shock

Anwar

Suhendra

2023

SAGE Open

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This paper examines the responses of stock traded and economic activity in relation to central bank independence shocks. The analysis is based on a panel Vector Autoregressive estimation covering 25 developing countries for a quarterly period between 1990 Q1 and 2021 Q4. Panel VAR estimation is known to be potentially biased in a dynamic panel data model if the coefficient on the endogenous variables differs across countries. To test the pooling assumption of the model, this paper applies the Chow and Roy-Zellner tests. The results establish that the models contain the heterogeneity among samples; thus, mean-group estimation for panel VAR is performed as a solution for heterogeneity problem. The results show that there is a delayed effect of CBI to increase stock traded. This demonstrates that CBI takes around six quarters to strengthen the financial market. By dividing the sample into two groups, we find that CBI has a different effect on stock traded for countries that have high and low stock traded.

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Section: Introductionmentioning

confidence: 87%

Measuring Response of Stock Market to Central Bank Independence Shock

Anwar

Suhendra

2023

SAGE Open

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“…In this context, several studies have been conducted to examine the possibility of the herding effect in financial markets in different parts of the globe. The findings of Chang et al (2020), Abdeldayem and Al Dulaimi (2020), Abd-Alla (2020), Espinosa-Méndez and Arias (2020, 2021), Bouri et al (2020), Wu et al (2020), Riaz et al (2020), Rahman and Ermawati (2020), Mnif et al (2020), Lee et al (2021) and Kizys et al (2021) support the presence of herding effect during the COVID-19 public health crisis. Particularly, the findings of Bouri et al (2020) reveal the presence of a strong herding effect in emerging stock markets, and thus, it depends on the development status of an economy.…”

Section: Literature Reviewmentioning

confidence: 96%

“…This herding behaviour entails that the investors tend to follow the behaviour of other groups of investors, mostly large investors while making investment decisions in financial markets (Hwang & Salmon, 2004; Parker & Prechter, 2005; Yousaf et al, 2018). Investors indulge in herding when they lack sufficient information to make appropriate asset choices for trading (Lee et al, 2021; Spyrou, 2013), they intend to invest a larger amount of capital by minimizing risks (Riaz et al, 2020), financial markets depict large stock price fluctuations or excess volatility, falling prices, calendar effects, asymmetric effects in stock returns, the imbalance between prices and fundamental variables (Bekiros et al, 2017; Golarzi & Ziyachi, 2013; Kabir & Shakur, 2018; Mobarek et al, 2014; Tan et al, 2008; Youssef & Mokni, 2018), they sell and buy the same assets simultaneously (Lakonishok et al, 1992) and/or when they lack confidence due to severe market stress, crises and uncertainties (Bouri et al, 2020; Chiang & Zheng, 2010; Christie & Haung, 1995; Devenow & Welch, 1996; Forbes & Rigobon, 2002; Rahman & Ermawati, 2020). In all these, the objective is the protection of investments against market risks and uncertainties, and to optimize returns on investments.…”

Section: Literature Reviewmentioning

confidence: 99%

Do Banking and Financial Services Sectors Show Herding Behaviour in Indian Stock Market Amid COVID-19 Pandemic? Insights from Quantile Regression Approach

Mishra

2021

Millennial Asia

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In India, the coronavirus (COVID-19) pandemic-induced country-wide regulatory lockdown and consequential supply-chain disruptions and market instability have all posed serious challenges before the regulators and policymakers. Amid the pandemic, the stock market showed return volatilities primarily due to the unexpected investors’ behaviour. One of the behavioural biases is herding, which has the power to wreck the market equilibrium and shatter the market efficiency. Given that the pandemic has generated unprecedented spirals of uncertainties across the globe, thereby creating interruptions in the pattern of stock market investment decisions, this study examined the herding behaviour of 54 stocks of banking and financial services sectors listed in the national stock exchange. In the quantile regression framework, the study provides evidence of the presence of herding for public sector banking and financial services under the bull market conditions during the pandemic in the 90th quantile of the return distribution. This finding has implications for the mispricing of financial assets in these sectors. So, the study suggests removing information asymmetry among the market participants and devising policy initiatives for ensuring market stability.

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“…The previous evidence indicates that large stock price declines generate a significant price decline in the industry matched peers. Recent research shows that there is a clustering of corporate defaults in the same industry (e.g., Chava and Jarrow, 2004; Lando and Nielsen, 2010; Huang and Lee, 2013; Rahman and Ermawati, 2020). Similarly, negative signals associated with a bankruptcy can trigger stock price effects for rival firms in the corresponding industry.…”

Section: Introductionmentioning

confidence: 99%

Spillover effects of crash and jump events: evidence from Chinese market

Usman¹,

Akhter²,

Haque³

2023

CFRI

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PurposeThis paper aims to investigate the spillover effects of jump and crash events among Chinese nonfinancial firms.Design/methodology/approachThis sample consists of more than 1.5 million weekly observations of over 3,000 Chinese listed firms over the period 1991–2015. The authors utilize univariate tests to compare the post-event performance of matched peer and non-peer control firms and cross-sectional regressions of their abnormal returns/cumulative abnormal returns (ARs/CARs) and returns on assets (ROAs).FindingsThe authors find that extreme risk-adjusted abnormal stock returns (stock price crashes and jumps) generate statistically significant ARs/CARs in the same directions in industry, size, leverage, and geographical location matched peer firms in Chinese stock market. Further tests reveal that peer firms' response to the crash event is pronounced more in the group of firms about which the information asymmetry is high between investors and firms.Research limitations/implicationsPortfolio investors can adjust their portfolios accordingly by selling stocks of the matching rival firms during a crash period. Policymakers may develop policies so as to protect the interests of small investors in the events of crashes in the markets. They can reduce the information asymmetry between the firms and the investors by making information about the firms more transparent, so as to reduce the contagion in case of crash event.Practical implicationsThis study has important implications for portfolio investment managers and policymakers.Originality/valueTo the best of authors' knowledge, this is the first study that combines the jump and crash events and attempts to assess their spillover effects on other firms in Chinese stock market.

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An Analysis of Herding Behavior in the Stock Market: A Case Study of the Asean-5 and the United States

Cited by 11 publications

References 55 publications

Measuring Response of Stock Market to Central Bank Independence Shock

Measuring Response of Stock Market to Central Bank Independence Shock

Do Banking and Financial Services Sectors Show Herding Behaviour in Indian Stock Market Amid COVID-19 Pandemic? Insights from Quantile Regression Approach

Spillover effects of crash and jump events: evidence from Chinese market

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