Herding in frontier stock markets: evidence from the Vietnamese stock market

Abstract

By using the model of Chang et al. () with some modification and extension, this paper provides three main contributions to investor behavior literature in frontier stock markets, specifically the Vietnamese stock market. First, the study found the evidence of herd behavior in Vietnam, a frontier market, in both industry and market contexts. Second, the results show that investor herd behavior is driven by both up and down market scenarios. Third, the study observes that U.S. stock market affects herd behavior in the Vietnamese stock market. However, the Hong Kong stock market only impacts market information.

The COVID-19 Pandemic and Herding Behaviour: Evidence from India’s Stock Market

“…We examine the herd behaviour from an industry perspective for two main reasons. First, this article follows the suggestions of Bikhchandani and Sharma (2001) and Bui et al (2018), and they argue that investors generally face a similar investment decision problems and intend to observe the trades of others at the industry level. Additionally, asset managers' suggestions, financial analyst's analysis and investors' decisions are based on information dispersed at the industry level (Demirer et al, 2010).…”

“…In this article, we examine whether the COVID-19 outbreak causes herd formation in stock markets, specifically at the industry level. Researchers who focused on herd behaviour tend to agree that it is one of the common irrational investment behaviours that may cause abnormal losses and returns in a financial market (Bui et al, 2018). Banerjee (1992) defines herding as 'everybody doing what everyone else is doing even when their private information suggests doing something else'.…”

Stock Market Contagion during the Global Financial Crises: Evidence from the Chilean Stock Market

“…We measure changes in equity holdings across investor groups to show that herding behavior is not an important contributor to the lagged effects of the contagion. The result demonstrates the potential for our holdings-based methodology that can complement the traditional return-based methodology of Bekaert et al (2014), Dungey and Gajurel (2015) and Bui et al (2018). The study results highlight the importance of effective stock market regulation, banking regulation, and creditor monitoring for mitigating the effects of global financial crises.…”

“…This is a psychological behavior of market participants, and finance researchers have detected the presence of herding by looking at the relationship between individual firm stock returns and the average market returns. It is argued that investors ignore the fundamental analysis to explain stock prices' movements and instead base their decisions on aggregate market behavior, which has been found to be the case during the periods of large market movements (Chang et al 2000;Bui et al 2018). This may be the case with the coronavirus-related financial shock that is rattling the global financial markets in 2020.…”

“…Hence, to study the 2020 global financial crises, it would be important to gain a better understanding of the reasons for the 2008 and 2011 crises. Bui et al (2018) found that investor herd behavior is driven by both up and down overall market returns and showed that the variations in US stock market returns (not the Hong Kong stock market) were responsible for herd behavior in the frontier market of the Vietnamese stock exchange. Bekaert et al (2014) and Dungey and Gajurel (2015) addressed the shortcoming in the literature on the co-movement of equity market returns surrounding the 2008 US mortgage crisis.…”