Herding behavior in Islamic GCC stock market: a daily analysis

2018 ◽  
Vol 11 (2) ◽  
pp. 182-193 ◽  
Author(s):  
Mustapha Chaffai ◽  
Imed Medhioub
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Financial Markets ◽  
Stock Returns ◽  
Stock Markets ◽  
Content Type ◽  
Quantile Regression Analysis ◽  
Herd Behaviour ◽  
The Impact ◽  
Quantile Regression Method

Purpose This paper aims to examine the presence of herd behaviour in the Islamic Gulf Cooperation Council (GCC) stock markets following the methodology given by Chiang and Zheng (2010). Generalized auto regressive conditional heteroskedasticity (GARCH)-type models and quantile regression analysis are used and applied to daily data ranging from 3 January 2010 to 28 July 2016. Results show evidence of herd behaviour in the GCC stock markets. When the data are divided into down and up market periods, herd information is found to be statistically significant and negative during upward market periods only. These results are similar to those reported in some emerging markets such as China, Japan and Hong Kong, where stock returns perform more similarly during down market periods and differently during rising markets. Design/methodology/approach The authors present a brief literature on herd behaviour. Second, the authors provide some specificity of the GCC Islamic stock market, followed by the presentation of the methodology and the data, results and their interpretation. Findings The authors take into account the difference existing in market conditions and find evidence of herding behaviour during rising markets only for GCC markets. This result was confirmed after using the quantile regression method, as evidence of herding was observed only in highly extreme periods. Stock returns perform more similarly when market is down in Islamic GCC stock market. Research limitations/implications The research limitation consists in the fact that this work can be extended to compare the GCC stock markets with other markets in Asia such as Malaysia and Indonesia. Practical implications The principal implication consists in the fact that herding behaviour is limited in the GCC markets and Islamic finance can have an important contribution to moderate the behaviour in the financial markets. Social implications The work focusses on the role of ethics in the financial markets and their ability to reduce the impact of behavioural biases. Originality/value The paper studies the behaviour of investors in the Islamic financial markets and gives an idea about the importance of the behaviour in this particular market regarding its characteristics.

A quantile regression approach to evaluate the relative impact of global and local factors on the MENA stock markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Slah Bahloul ◽  
Nawel Ben Amor
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Stock Returns ◽  
Stock Markets ◽  
Financial Integration ◽  
Ordinary Least Squares ◽  
Market Returns ◽  
Stock Market Returns ◽  
Content Type ◽  
The Impact

PurposeThis paper investigates the relative importance of local macroeconomic and global factors in the explanation of twelve MENA (Middle East and North Africa) stock market returns across the different quantiles in order to determine their degree of international financial integration.Design/methodology/approachThe authors use both ordinary least squares and quantile regressions from January 2007 to January 2018. Quantile regression permits to know how the effects of explanatory variables vary across the different states of the market.FindingsThe results of this paper indicate that the impact of local macroeconomic and global factors differs across the quantiles and markets. Generally, there are wide ranges in degree of international integration and most of MENA stock markets appear to be weakly integrated. This reveals that the portfolio diversification within the stock markets in this region is still beneficial.Originality/valueThis paper is original for two reasons. First, it emphasizes, over a fairly long period, the impact of a large number of macroeconomic and global variables on the MENA stock market returns. Second, it examines if the relative effects of these factors on MENA stock returns vary or not across the market states and MENA countries.

Is stock market in Sub-Saharan Africa resilient to health shocks?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Terver Kumeka ◽  
Patricia Ajayi ◽  
Oluwatosin Adeniyi
Keyword(s):  
Exchange Rate ◽  
Stock Market ◽  
Financial Markets ◽  
Stock Returns ◽  
Stock Markets ◽  
Commodity Markets ◽  
The Other ◽  
Content Type ◽  
Exogenous Shocks ◽  
The Impact

Purpose This paper aims to examine the impact of health and other exogenous shocks on stock markets in Africa. Particularly, the authors examined the resilience of the major stock markets in 12 African economies during the recent global pandemic. Design/methodology/approach This paper uses the recent panel vector autoregressive model, which enables us to capture the response of stock markets to shocks in COVID-19, commodity markets and exchange rate. For robustness, the authors also analysed the panel Granger causality test. Data was obtained for the period ranging from 2 January 2020 to 31 December 2020. Findings The results show that the growth in COVID-19 cases and deaths do not have any substantial impact on the stock market returns of these economies. In terms of commodity markets, the authors find that gold price has a negative contemporaneous effect on stock returns, but the effect fizzles out around the fifth day while crude oil price, on the other hand, has a significant positive simult aneous impact on stock returns and also converges around the fifth day. The authors further find that the exchange rate has a contemporaneous and nonlinear effect on stock returns and seems to be more dramatic when compared with the other variables. Overall, the results show that stock markets in Africa appear to be flexible and resilient against the COVID-19 outbreak but are affected by other exogenous shocks such as volatile commodity prices and the foreign exchange market. The effect is, however, short-lived – between one to five days. Practical implications Following the study’s findings, policies should be put in place to support financial markets by way of hedging against commodity instability and securing domestic currency financing. Policymakers are also recommended to concentrate on managing the uncertainties around their exchange rate markets and develop robust and efficient domestic financial markets to encourage local and foreign investors. Originality/value Several studies have been carried out on the effects of disasters (such as the COVID-19 pandemic) on stock markets, but only a few studies have examined the resilience of stock markets to health and other exogenous shocks. This study’s attempt is not only to examine the impact of COVID-19 health shocks on stock markets but also to analyse the resilience of the sampled stock markets. The authors also analyse the resilience of stock markets to commodity markets and exchange rates shocks.

Effects of MILA on their stock markets: an empirical analysis on market activity and dynamic correlations

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Jorge Andrés Muñoz Mendoza ◽  
Sandra María Sepúlveda Yelpo ◽  
Carmen Lissette Velosos Ramos ◽  
Carlos Leandro Delgado Fuentealba
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
Regime Switching ◽  
Series Data ◽  
Integration Process ◽  
Content Type ◽  
Market Activity ◽  
Dynamic Correlations ◽  
The Impact

PurposeThe purpose of this article is to analyze the effects of the integration process for the Integrated Market of Latin America (MILA) on its stock markets behavior as well as their degree of integration.Design/methodology/approachDaily time series data were used for stock returns, volatility, volume and the number of transactions and securities between August 16, 2007 and December 28, 2018. A DCC-MGARCH model was applied to analyze the impact of MILA on stock market behavior and predict dynamic correlations. A GARCH (1,1) model was used to determine the effect of MILA on co-movements between markets. Finally, a Markov regime switching model was used for robustness analysis.FindingsMILA increased stock market activity in terms of volume, transactions and securities traded. However, it reduced returns and volatility. MILA had significant effects on the dynamic correlations between regional stock markets. After the integration process, the dynamic correlations of returns and volatility were reduced, but those related to volume, transactions and securities traded increased. Mexico's subsequent entry into MILA further reduced market volatility, but it did not have relevant effects on markets' co-movements.Originality/valueThese results are relevant for investors and policymakers. MILA has benefited the markets by promoting stock market activity, reducing risk, creating a margin for diversification and limiting risk contagion between them. These results help to guide investment decisions due to the fact that MILA's benefits in terms of regional diversification would be greater in some markets.

RESPONSE OF STOCK MARKET DURING COVID-19 AND 2008 FINANCIAL CRISIS: A COMPARATIVE EVIDENCE FROM BRICS NATIONS

2021 ◽  
pp. 1-24
Author(s):  
SANJEEV KUMAR ◽  
JASPREET KAUR ◽  
MOSAB I. TABASH ◽  
DANG K. TRAN ◽  
RAJ S DHANKAR
Keyword(s):  
South Africa ◽  
Financial Crisis ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
2008 Financial Crisis ◽  
First Case ◽  
Egarch Model ◽  
The 2008 Financial Crisis ◽  
The Impact

This study attempts to examine the response of stock markets amid the COVID-19 pandemic on prominent stock markets of the BRICS nation and compare it with the 2008 financial crisis by employing the GARCH and EGARCH model. First, average and variance of stock returns are tested for differences before and after the pandemic, t-test and F-test were applied. Further, OLS regression was applied to study the impact of COVID-19 on the standard deviation of returns using daily data of total cases, total deaths, and returns of the indices from the date on which the first case was reported till June 2020. Second, GARCH and EGARCH models are employed to compare the impact of COVID-19 and the 2008 financial crisis on the stock market volatility by using the data of respective stock indices for the period 2005–2020. The results suggest that the increasing number of COVID-19 cases and reported death cases hurt stock markets of the five countries except for South Africa in the latter case. The findings of the GARCH and EGARCH model indicate that for India and Russia, the financial crisis of 2008 has caused more stock volatility whereas stock markets of China, Brazil, and South Africa have been more volatile during the COVID-19 pandemic. The study has practical implications for investors, portfolio managers, institutional investors, regulatory institutions, and policymakers as it provides an understanding of stock market behavior in response to a major global crisis and helps them in taking decisions considering the risk of these events.

Stock markets' reaction to COVID-19: evidence from the six WHO regions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Anas Ali Al-Qudah ◽  
Asma Houcine
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Early Stage ◽  
Eastern Mediterranean ◽  
Abnormal Returns ◽  
Western Pacific ◽  
Content Type ◽  
Panel Data Regression ◽  
Daily Stock Returns ◽  
The Impact

PurposeThis study investigates the effects of the COVID-19 outbreak on daily stock returns for the six major affected WHO Regions, namely: Africa, Americas, Eastern Mediterranean, Europe, South-East Asia and Western Pacific.Design/methodology/approachThis study uses an event study method and panel-data regression models to examine the effect of the daily increase in the number of COVID-19 confirmed cases on daily stock returns from 1 March to 1 August 2020 for the leading stock market in major affected countries in the WHO regions.FindingsThe results reveal an adverse impact of the daily increasing number of COVID-19 cases on stock returns and stock markets fell quickly in response to the pandemic. The findings also suggest that negative market reaction was strong during the early stage of the outbreak between the 26th and 35th days after the initial confirmed cases. We further find that stock markets in the Western Pacific region experienced more negative abnormal returns as compared to other regions. The results also confirm that feelings of fear among investors turned out to be a mediator and a transmission channel for the effect of COVID-19 outbreak on the stock markets.Research limitations/implicationsThis study contributes to financial literature in two ways. First, we contribute to existing literature that has examined the effect of various catastrophes and crises on the stock markets Second, we contribute to the recent emerging literature that examines the impact of COVID-19 on financial markets.Practical implicationsThe study may have implications for policymakers to deal with this outbreak without triggering uncertainty in stock markets and reassure investors' confidence. The study may also be of interest to investors, managers, financial analysts by revealing how the stock markets quickly respond to outbreaks.Originality/valueThis study is the first study to examine the impact of the COVID-19 outbreak on the leading stock markets of the WHO regions.

Do Indian stock market sentiments impact contemporaneous returns?

2018 ◽  
Vol 7 (3) ◽  
pp. 332-346
Author(s):  
Divya Aggarwal ◽  
Pitabas Mohanty
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Temporal Dynamics ◽  
Stock Exchange ◽  
Principal Component ◽  
Stock Index ◽  
Content Type ◽  
Investor Sentiments ◽  
Indian Stock Market ◽  
The Impact

Purpose The purpose of this paper is to analyse the impact of Indian investor sentiments on contemporaneous stock returns of Bombay Stock Exchange, National Stock Exchange and various sectoral indices in India by developing a sentiment index. Design/methodology/approach The study uses principal component analysis to develop a sentiment index as a proxy for Indian stock market sentiments over a time frame from April 1996 to January 2017. It uses an exploratory approach to identify relevant proxies in building a sentiment index using indirect market measures and macro variables of Indian and US markets. Findings The study finds that there is a significant positive correlation between the sentiment index and stock index returns. Sectors which are more dependent on institutional fund flows show a significant impact of the change in sentiments on their respective sectoral indices. Research limitations/implications The study has used data at a monthly frequency. Analysing higher frequency data can explain short-term temporal dynamics between sentiments and returns better. Further studies can be done to explore whether sentiments can be used to predict stock returns. Practical implications The results imply that one can develop profitable trading strategies by investing in sectors like metals and capital goods, which are more susceptible to generate positive returns when the sentiment index is high. Originality/value The study supplements the existing literature on the impact of investor sentiments on contemporaneous stock returns in the context of a developing market. It identifies relevant proxies of investor sentiments for the Indian stock market.

Risk, uncertainty and stock returns predictability – a case of emerging equity markets

2018 ◽  
Vol 10 (4) ◽  
pp. 438-455
Author(s):  
Rakesh Kumar
Keyword(s):  
Stock Returns ◽  
Stock Markets ◽  
Structural Break ◽  
Negative Relationship ◽  
Equity Markets ◽  
Growth Period ◽  
Risk And Uncertainty ◽  
Content Type ◽  
International Equity Markets ◽  
The Impact

Purpose This paper aims to investigate the predictability of stock returns under risk and uncertainty of a set of 11 emerging equity markets (EEMs) during the pre- and post-crash periods. Design/methodology/approach Listed indices are considered to serve the proxy of stock markets with a structural break in data for the period: 2000-2014. As preliminary results highlight the significant autocorrelations in stock returns, Threshold-GARCH (1,1) model is used to estimate the conditional volatility, which is further decomposed into expected and unexpected volatility. Findings Results highlight that the volatility has symmetric impact on stock returns during the pre-crash period and asymmetric impact during the post-crash period. While testing the relationship of stock returns, a significant positive (negative) relationship is found with expected volatility during the pre-crash (post-crash) periods. The stock returns are found positively related to unexpected volatility. Research limitations/implications Business, political and other market conditions of sample stock markets are fundamentally different. These economies were liberalized in different years, which may affect the degree of integration with international equity markets. Practical implications The findings highlight that investors consider the impact of expected volatility in forecasting of stock returns during the growth period. They realize returns in commensurate to risk of their portfolios. However, they significantly reduce their investments in response to expected volatility during the recession period. The positive relationship between stock returns and unexpected volatility highlights the fact that investors realize extra returns for exposing their portfolios to unexpected volatility. Originality/value Pioneer efforts are made by using T-GARCH (1,1) procedure to analyse the problem. Given the emergence of emerging equity markets, new insight in dynamics of stock returns provide interesting findings for portfolio diversification under risk and uncertainty.

Investor attention and market correction

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zhongdong Chen
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Trading Behavior ◽  
Investor Attention ◽  
Information Effect ◽  
Content Type ◽  
Economic Significance ◽  
New Information ◽  
Positive Volume ◽  
The Impact

PurposeThis study disentangles the investor-base effect and the information effect of investor attention. The former leads to a larger investor base and higher stock returns, while the latter facilitates the dissemination of information among investors and impacts informational trading.Design/methodology/approachUsing positive volume shocks as a proxy for increased investor attention, this study evaluates the impacts of the investor-base effect and the information effect of investor attention on market correction following extreme daily returns in the US stock market from 1966 to 2018.FindingsThis study finds that the investor-base effect increases subsequent returns of both daily winner and daily loser stocks. The information effect leads to economically less significant return reversals for both the daily winner and daily loser stocks. These two effects tend to have economically more significant impacts on the daily loser stocks. The economic significance of these two effects is also related to firm size and the state of the stock market.Originality/valueThis study is the first to disentangle the investor-base effect and the information effect of increased investor attention. The evidence that the information effect facilitates the dissemination of new information and impacts stock returns contributes to the strand of studies on the impact of investor attention on market efficiency. This evidence also contributes to the strand of studies analyzing the impact of informational trading on stock returns. In addition, this study provides evidence for market overreaction and the subsequent correction. The results for up and down markets contribute to the literature on the investors' trading behavior.

scholarly journals THE VOLATILITY TRANSMISSION OF MAIN GLOBAL STOCK'S RETURN TO INDONESIA

2017 ◽  
Vol 20 (2) ◽  
pp. 229-256
Author(s):  
Linda Karlina Sari ◽  
Noer Azam Achsani ◽  
Bagus Sartono
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Markets ◽  
Stock Return ◽  
Global Financial Crisis ◽  
Symmetric Model ◽  
Return Volatility ◽  
Stock Return Volatility ◽  
Volatility Transmission ◽  
The Impact

Stock return volatility is a very interesting phenomenon because of its impact on global financial markets. For instance, an adverse shocks in one country’s market can be transmitted to other countries’ market through a particular mechanism of transmission, causing the related markets to experience financial instability as well (Liu et al., 1998). This paper aims to determine the best model to describe the volatility of stock returns, to identify asymmetric effect of such volatility, as well as to explore the transmission of stocks return volatilities in seven countries to Indonesia’s stock market over the period 1990-2016, on a daily basis. Modeling of stock return volatility uses symmetric and asymmetric GARCH, while analysis of stock return volatility transmission utilizes Vector Autoregressive system. This study found that the asymmetric model of GARCH, resulted from fitting the right model for all seven stock markets, provides a better estimation in portraying stock return volatility than symmetric model. Moreover, the model can reveal the presence of asymmetric effects on those seven stock markets. Other finding shows that Hong Kong and Singapore markets play dominant roles in influencing volatility return of Indonesia’s stock market. In addition, the degree of interdependence between Indonesia’s and foreign stock market increased substantially after the 2007 global financial crisis, as indicated by a drastic increase of the impact of stock return volatilities in the US and UK market on the volatility of Indonesia’s stock return.

scholarly journals A note on the relationship between COVID-19 and stock market return: evidence from South Asia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md Arafat Rahman ◽  
Md Mohsan Khudri ◽  
Muhammad Kamran ◽  
Pakeezah Butt
Keyword(s):  
Stock Market ◽  
South Asian ◽  
Stock Markets ◽  
Asian Countries ◽  
Causality Test ◽  
Stock Market Returns ◽  
Content Type ◽  
Market Return ◽  
Stock Market Return ◽  
The Impact

Purpose The transformation of coronavirus disease (COVID-19) from a regional health crisis in a Chinese city to a global pandemic has caused severe damage not only to the natural and economic lives of human beings but also to the financial markets. The rapidly pervading and daunting consequences of COVID-19 spread have plummeted the stock markets to their lowest levels in many decades especially in South Asia. This concern motivates us to investigate the stock markets’ response to the COVID-19 pandemic in four South Asian countries: Bangladesh, India, Pakistan and Sri Lanka. This study aims to investigate the causal impact of the number of confirmed COVID-19 cases on stock market returns using panel data of the countries stated above. Design/methodology/approach This study collects and analyzes the daily data on COVID-19 spread and stock market return over the period May 28, 2020 to October 01, 2020. Using Dumitrescu and Hurlin panel Granger non-causality test, the empirical results demonstrate that the COVID-19 spread measured through its daily confirmed cases in a country significantly induces stock market return. This paper cross-validates the results using the pairwise Granger causality test. Findings The empirical results suggest unidirectional causality from COVID-19 to stock market returns, indicating that the spread of COVID-19 has a dominant short-term influence on the stock movements. To the best of the knowledge, this study provides the first empirical insights into the impact of COVID-19 on the stock markets of selected South Asian countries taking the cross-sectional dependence into account. The results are also in line with the findings of other existing literature on COVID-19. Moreover, the results are robust across the two tests used in this study. Originality/value The findings are equally insightful to the fund managers and investors in South Asian countries. Taking into account the possible impact of COVID-19 on stock markets’ returns, investors can design their optimal portfolios more effectively. This study has another important implication in the sense that the impact of COVID-19 on the stock markets of South Asian countries may have spillover effects on other developing or even developed countries.

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