Remeasuring Sectoral Herding in the Financial Markets

Abstract

<jats:p>Herding behavior was concluded to exist in some sectors and under some market conditions in the Jordanian stock market when measured using the cross-sectional absolute deviation. The purpose of this study was to retest the existence of the sectoral herding using the cross-sectional dispersion of betas and compare the results with those reached using the measure of the cross-sectional absolute deviation. Behavioral finance theory represents the main base on which this study was built. In this study, the researcher tried to answer questions related to whether herding behavior exists in the Jordanian market and its sectors if measured using cross-sectional dispersion of betas and whether results will be different from those reached using other measures. In this quantitative study, data from Amman stock exchange were used and the period covered was from 2000 to 2018. These data were used to calculate the cross-sectional dispersion of betas which was tested using t-test, Kruskal&amp;ndash;Wallis test, Mann-Whitney U test, and Wilcoxon Signed-Rank test. Results indicated that herding behavior existed in market and in each sector at the same level which was not affected by the financial crisis. Furthermore, the study revealed that herding level was the same when the market (sector) was rising and when it was falling and this similarity has not been changed by the occurrence of the global financial crisis. Finally, results indicated that herding was at its lowest level in the entire market and in the industrial sector during the time of financial crisis. These results are different from those of the study conducted in Jordan using cross-sectional absolute deviation which implies that using different herding measures yields different results.</jats:p>

Herding and Google search queries in the Brazilian stock market

“…The lower value of Hmt*, the greater the impact of herding. When Hmt*=0, the lowest possible value for the parameter, changes in the price of asset i perfectly track changes in overall market returns (Elshqirat, 2020).…”

Cross-Market Herding: Do ‘Herds’ Herd with Each Other?

“…Herding has also been found to vary with stock-size (it often appears stronger among small capitalization stocks, due to their elevated information risk rendering monitoring others' trades informative; see Lakonishok et al, 1992;Wermers, 1999;Sias, 2004;Hung et al, 2010;Benkraiem et al, 2021), as well as across industries (Choi and Sias, 2009;Zhou and Lai, 2009;Gavriilidis et al, 2013;Gebka and Wohar, 2013;Celiker et al, 2015). Furthermore, herding has been found to manifest itself asymmetrically contingent upon different states of a market's returns (Chang et al 2000;Goodfellow et al, 2009;Chiang and Zheng, 2010;Economou et al, 2011;Holmes et al, 2013;Elshqirat, 2020), volatility (Economou et al, 2011;Holmes et al, 2013;Guney et al 2017), volume (Tan et al, 2008;Economou et al, 2011;2015a;2015b;Andrikopoulos et al, 2021) and sentiment (Liao et al, 2011;Blasco et al, 2012), without however, these asymmetries exhibiting any consistent pattern internationally.…”