Herd Behaviour, Illiquidity and Extreme Market States

Abstract

A large amount of studies have attempted to trace the presence of herding during extreme periods at the cross-sectional level by associating herding with the reduction in the cross-sectional dispersion of returns around the market average. In this article we address the issue of whether the estimation of herding on the premises of such frameworks is robust to the thin trading bias whose presence is particularly prevalent in emerging markets. Our study is undertaken in the context of the Banja Luka Stock Exchange, which is one of the world’s most recently established markets. Results indicate that herding is insignificant during extreme return periods with its insignificance persisting even after controlling for thin trading.

Impact of Behavioral Factors in Making Investment Decisions and Performance: Study on Investors of National Stock Exchange

“…Grazing is considered an important factor, as it greatly influences the risk characteristics and performance values (Tan, Chiang, Mason, & Nelling, 2008). The heritage can greatly contribute to the analysis and performance evaluation because individuals with poor ability try to imitate individuals' behaviors that have a great ability to develop their reputation (Kallinterakis, Munir, & Markovic, 2010), the decisions of buying and selling other investors depend on the decisions of other investors as this leads to a decrease risk The efficient market is due to the fact that rational investors do not follow the masses, rating leads to speculative conditions that make the market ineffective.…”

Do fund managers herd in frontier markets — and why?

“…Given the infancy stage of their financial systems, their regulatory frameworks are expected to be incomplete, with challenges possibly arising in the implementation of their rules environments, corporate disclosure is likely to be less credible and transparency is expected to be low, leading investors to place less faith in public information andgiven their relatively limited investment experience -grow more susceptible to nonfundamental trading patterns (such as herding). Stock exchanges in frontier markets tend to enjoy overall low trading activity, while the low per capita income in most of these markets further contributes to their illiquidity as it fails to allow for wide participation on behalf of their local investors (Kallinterakis et al, 2010). Despite their market-orientation, the presence of restrictions over the entry and trading conduct of foreign investors (Behar and Hest, 2010) is a likely occurrence in frontier markets, further curtailing investors' participation there.…”

Perilaku Herding Di Pasar Saham: Sebuah Kajian Literatur

“…Investor menunjukan penyimpangan perilaku (bias) yang berpotensi memengaruhi efisiensi pasar (Barber & Odean, 2000;Kumar & Goyal, 2015). Disisi rasional, investor dapat memilih untuk meniru jika mereka menganggap perilaku berkelompok dapat menambah informasi dan menguntungkan mereka (Andrea Devenow & Ivo Welch, 1996;Kallinterakis, Munir, & Radovic-Markovic, 2010). Seorang investor, misalnya, mendapatkan informasi yang memadai untuk mengambil keputusan atau investor lebih meyakini bahwa orang lain memiliki informasi yang lebih baik, dapat memutuskan untuk meniru tindakan orang lain jika menganggapnya informatif.…”