Cross-herding behavior between the stock market and the crude oil market during financial distress

2018 ◽  
Vol 44 (4) ◽  
pp. 439-458 ◽  
Author(s):  
Houda BenMabrouk
Keyword(s):  
Stock Market ◽  
Crude Oil ◽  
Investor Sentiment ◽  
Market Volatility ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type ◽  
Oil Market ◽  
The Cross

Purpose The purpose of this paper is to investigate herding behavior around the crude oil market and the stock market and the possible cross-herding behavior between the two markets. The analysis examines also the herding behavior during financial turmoil and includes the investor sentiment and market volatility. Design/methodology/approach The authors use a modified version of the cross-sectional standard deviation and the cross-sectional absolute deviation to include investor sentiment, financial crisis and market volatility. Findings The authors find that the volatility of the stock market reduces the herding behavior around the oil market and boosts that around the stock market. However, the investors’ sentiment reduces the herding around the stock market and boosts that around the crude oil market. Consequently, the authors can conclude that the herding behavior around the two markets moves inversely and the herding in each market is enhanced by the lack of information in the other market. Research limitations/implications This paper is limited to the herding of stocks around the crude oil market and ignores the possible herding of commodities around the oil market. Originality/value The originality of the paper rests on the study of the possible cross-herding behavior between the oil market and the stock market especially during financial turmoil.

scholarly journals Investor Sentiment and Herding Behavior in the Korean Stock Market

2020 ◽  
Vol 8 (2) ◽  
pp. 34
Author(s):  
Ki-Hong Choi ◽  
Seong-Min Yoon
Keyword(s):  
Stock Market ◽  
Quantile Regression ◽  
Stock Markets ◽  
Trading Volume ◽  
Investor Sentiment ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Korean Stock Market ◽  
Quantile Regression Method

This paper investigates herding behavior and the connection between herding behavior and investor sentiment. We apply a Cross-Sectional Absolute Deviation (CSAD) approach and the quantile regression method to capture herding behavior in the KOSPI and KOSDAQ stock markets. The analysis results are outlined as follows. First, we find that herding behavior is exhibited during down-market periods in the KOSPI and KOSDAQ stock markets. However, we show that adverse herding behavior occurs in low-trading volume and low-volatility periods. Second, according to the results of the quantile regression, herding behavior is found in the low and high quantiles of the KOSPI and KOSDAQ stock markets. However, adverse herding behavior is also found, which means that investors herd in extreme market conditions. Third, the relationship between investor sentiment and herding behavior is analyzed through regression and quantile regression, and investor sentiment is confirmed to be one of the important factors that can cause herding behavior in the Korean stock market.

scholarly journals Herding behavior and stock market conditions

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Abdollah Ah Mand ◽  
Hawati Janor ◽  
Ruzita Abdul Rahim ◽  
Tamat Sarmidi
Keyword(s):  
Stock Market ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Developed Countries ◽  
Herding Behavior ◽  
Market Conditions ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type ◽  
Market Return

Purpose The purpose of this paper is to investigate whether market conditions have an effect on investors’ propensity to herd in an emerging economy’s stock market. Additionally, given the lack of research on Islamic behavioral finance, the authors further investigate if the herding phenomenon is distinct in Islamic versus conventional stocks. Design/methodology/approach The authors used daily data for the period of 1995–2016 according to the herding behavior model of Chang et al. (2000), which relies on cross-sectional absolute deviation of returns. Findings Findings reveal the herding behavior of investors among Shariah-compliant during up and down market exits with non-linear relationship to the market return, while for conventional stocks herding behavior does not exist with linear nor nonlinear relationships during the up and down market. Furthermore, for the whole market, herding behavior only exists during upmarket with a nonlinear relationship to the market return. However, this relationship is not significant. Moreover, the results of this study are robust with respect to the effect of the Asian and global financial crisis. Practical implications The findings are useful for investors to identify which market conditions are associated with rational and irrational behavior of investors. Originality/value Most of the theoretical and empirical studies on herding behavior have focused on developed countries. Only a few studies have paid attention to the herding behavior in Islamic financial markets, particularly in the context of an emerging market such as Malaysia. This study fills this void.

Herd behavior in the French stock market

2017 ◽  
Vol 16 (4) ◽  
pp. 497-515 ◽  
Author(s):  
Houda Litimi
Keyword(s):  
Stock Market ◽  
Trading Volume ◽  
Design Methodology ◽  
Garch Model ◽  
Herd Behavior ◽  
Conditional Volatility ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type

Purpose This paper aims to investigate the herding behavior in the French stock market and its effect on the idiosyncratic conditional volatility at a sectoral level. Design/methodology/approach This sample covers all the listed companies in the French stock market, classified by sector, over four major crisis periods. The author modifies the cross-sectional absolute deviation (CSAD) model to include trading volume and investors sentiment as herding triggers. Furthermore, the author uses a modified GARCH model to investigate the effect of herding on conditional volatility. Findings Herding is present in the French market during crises, and it is present in only some sectors during the entire period. The main trigger for investors to embark into a collective herding movement differs from one sector to another. Furthermore, herding behavior has an inhibiting effect on market conditional volatility. Originality/value The author modifies the CSAD model to investigate the presence of herding in the French stock market at a sectoral level during turmoil periods. Furthermore, the particularly designed GARCH model provides new insights on the effect of herding and volume turnover on the conditional volatility.

scholarly journals Downside systematic risk in Pakistani stock market: role of corporate governance, financial liberalization and investor sentiment

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Shahzad Hussain ◽  
Muhammad Akbar ◽  
Qaisar Ali Malik ◽  
Tanveer Ahmad ◽  
Nasir Abbas
Keyword(s):  
Corporate Governance ◽  
Stock Market ◽  
Financial Liberalization ◽  
Investor Sentiment ◽  
Systematic Risk ◽  
Downside Risk ◽  
Market Volatility ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of corporate governance, investor sentiment and financial liberalization on downside systematic risk and the interplay of socio-political turbulence on this relationship through static and dynamic panel estimation models. Design/methodology/approach The evidence is based on a sample of 230 publicly listed non-financial firms from Pakistan Stock Exchange (PSX) over the period 2008–2018. Furthermore, this study analyzes the data through Blundell and Bond (1998) technique in the full sample as well sub-samples (big and small firms). Findings The authors document that corporate governance mechanism reduces the downside risk, whereas investor sentiment and financial liberalization increase the investors’ exposure toward downside risk. Particularly, the results provide some new insights that the socio-political turbulence as a moderator weakens the impact of corporate governance and strengthens the effect of investor sentiment and financial liberalization on downside risk. Consistent with prior studies, the analysis of sub-samples reveals some statistical variations in large and small-size sampled firms. Theoretically, the findings mainly support agency theory, noise trader theory and the Keynesians hypothesis. Originality/value Stock market volatility has become a prime area of concern for investors, policymakers and regulators in emerging economies. Primarily, the existence of market volatility is attributed to weak governance, irrational behavior of market participants, the liberation of financial policies and sociopolitical turbulence. Therefore, the present study provides simultaneous empirical evidence to determine whether corporate governance, investor sentiment and financial liberalization hinder or spur downside risk in an emerging economy. Furthermore, the work relates to a small number of studies that examine the role of socio-political turbulence as a moderator on the relationship of corporate governance, investor sentiment and financial liberalization with downside systematic risk.

scholarly journals Detection of structural regimes and analyzing the impact of crude oil market on Canadian stock market: Markov regime-switching approach

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammadreza Mahmoudi ◽  
Hana Ghaneei
Keyword(s):  
Stock Market ◽  
Crude Oil ◽  
Stock Return ◽  
Stock Exchange ◽  
Markov Switching ◽  
Stock Index ◽  
Var Model ◽  
Content Type ◽  
Oil Market ◽  
The Impact

Purpose This study aims to analyze the impact of the crude oil market on the Toronto Stock Exchange Index (TSX). Design/methodology/approach The focus is on detecting nonlinear relationship based on monthly data from 1970 to 2021 using Markov-switching vector auto regression (VAR) model. Findings The results indicate that TSX return contains two regimes: positive return (Regime 1), when growth rate of stock index is positive; and negative return (Regime 2), when growth rate of stock index is negative. Moreover, Regime 1 is more volatile than Regime 2. The findings also show the crude oil market has a negative effect on the stock market in Regime 1, while it has a positive effect on the stock market in Regime 2. In addition, the authors can see this effect in Regime 1 more significantly in comparison to Regime 2. Furthermore, two-period lag of oil price decreases stock return in Regime 1, while it increases stock return in Regime 2. Originality/value This study aims to address the effect of oil market fluctuation on TSX index using Markov-switching approach and capture the nonlinearities between them. To the best of the author’s knowledge, this is the first study to assess the effect of the oil market on TSX in different regimes using Markov-switching VAR model. Because Canada is the sixth-largest producer and exporter of oil in the world as well as the TSX as the Canada’s main stock exchange is the tenth-largest stock exchange in the world by market capitalization, this paper’s framework to analyze a nonlinear relationship between oil market and the stock market of Canada helps stock market players like policymakers, institutional investors and private investors to get a better understanding of the real world.

scholarly journals HERDING BEHAVIOR IN THE INDONESIAN ISLAMIC STOCK MARKET

2019 ◽  
Vol 5 (3) ◽  
pp. 673-690 ◽  
Author(s):  
Nora Amelda Rizal ◽  
Mirta Kartika Damayanti
Keyword(s):  
Stock Market ◽  
Stock Return ◽  
Stock Exchange ◽  
Stock Index ◽  
Market Condition ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Market Prices ◽  
Auto Regressive

Indonesia Stock Exchange provides Islamic stocks for Muslim investors who want toinvest, with the first Islamic stock index in Indonesia being Jakarta Islamic Index or JIIthat consists of thirty of the most liquid Islamic stocks. The market capitalization of JIItends to increase every year. This paper examines the presence of herding behavior inemerging Islamic stock market of Indonesia using daily return of Indonesia CompositeIndex and JII from October 6, 2000 to October 5, 2018. Herding behavior could generallytrigger shifting market prices from equilibrium values. Herding behavior may beidentified from the relation between stock return dispersion and market return. Stockreturn dispersion is measured using Cross Sectional Absolute Deviation or CSAD.Generalized Auto Regressive Conditional Heteroskedasticity or GARCH method isused to detect herding behavior. GARCH does not see heteroskedasticity as a problem,instead uses it to make a model. The result indicates that herding behavior exist inIslamic stock market of Indonesia. Asymmetric herding occurs in Indonesia Islamicstock market where herding behavior exists during falling market condition only.

Impact of herding on the returns in the Indian stock market: an empirical study

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sunaina Kanojia ◽  
Deepti Singh ◽  
Ashutosh Goswami
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Market Condition ◽  
Individual Investors ◽  
Herd Behavior ◽  
Market Conditions ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Content Type ◽  
Indian Stock Market

PurposeHerd behavior has been studied herein and tested based on primary respondents from Indian markets.Design/methodology/approachThe paper expounds the empirical evidence by applying the cross-sectional absolute deviation method and reporting on herd behavior among decision-makers who are engaged in trading in the Indian stock market. Further, the study attempts to analyze the market-wide herding in the Indian stock market using 2230 daily, 470 weekly and 108 monthly observations of Nifty 50 stock returns for a period of nine years from April 1, 2009 to March 31, 2018 during the normal market conditions, extreme market conditions and in both increasing and decreasing market conditions.FindingsIn a span of a decade witnessing different market cycles, the authors’ results exhibit that there is no evidence of herding in any market condition in Indian stock market primarily due to the dominance of institutional investors and secondly because of low market participation by individual investors.Originality/valueThe results reveal that there is no impact of herd behavior on the stock returns in the Indian equity market during the normal market conditions. It highlights that the participation of individuals who are more prone to herding is more evident for short-run investments, contrary to long-term holdings.

Conditional multifactor asset pricing model and market anomalies

2013 ◽  
Vol 5 (4) ◽  
pp. 271-294 ◽  
Author(s):  
Saumya Ranjan Dash ◽  
Jitendra Mahakud
Keyword(s):  
Stock Market ◽  
Size Effect ◽  
Investment Strategy ◽  
Momentum Effect ◽  
Market Anomalies ◽  
Cross Sectional ◽  
Content Type ◽  
Short Run ◽  
The Cross ◽  
Indian Stock Market

Purpose – The purpose of this paper is to investigate the firm-specific anomaly effect and to identify market anomalies that account for the cross-sectional regularity in the Indian stock market. The paper also examines the cross-sectional return predictability of market anomalies after making the firm-specific raw return risk adjusted with respect to the systematic risk factors in the unconditional and conditional multifactor specifications. Design/methodology/approach – The paper employs first step time series regression approach to drive the risk-adjusted return of individual firms. For examining the predictability of firm characteristics on the risk-adjusted return, the panel data estimation technique has been used. Findings – There is a weak anomaly effect in the Indian stock market. The choice of a five-factor model (FFM) in its unconditional and conditional specifications is able to capture the book-to-market equity, liquidity and medium-term momentum effect. The size, market leverage and short-run momentum effect are found to be persistent in the Indian stock market even with the alternative conditional specifications of the FFM. The results also suggest that it is naï argue for disappearing size effect in the cross-sectional regularity. Research limitations/implications – Constrained upon the data availability, certain market anomalies and conditioning variables cannot be included in the analysis. Practical implications – Considering the practitioners' prospective, the results indicate that the profitable investment strategy with respect to the small size effect is still persistent and warrants close-ended mutual fund investment portfolio strategy for enhancing the long-term profitability. The short-run momentum effect can generate potential profits given a short-term investment horizon. Originality/value – This paper provides the first-ever empirical evidence from an emerging stock market towards the use of alternative conditional multifactor models for the complete explanation of market anomalies. In an attempt to analyze the anomaly effect in the Indian stock market, this paper provides further evidence towards the long-short hedge portfolio return variations in terms of a wide set of market anomalies that have been documented in prior literature.

scholarly journals Investigative Study of Investor’s Herding Behavior During Bullish and Bearish Market: A Case of Pakistan Stock Exchange

2021 ◽  
Vol 6 (3) ◽  
pp. 17-25
Author(s):  
Muhammad Tayyab Ul Hassan ◽  
Syed Hassan Jamil
Keyword(s):  
Standard Deviation ◽  
Trading Volume ◽  
Stock Exchange ◽  
Emerging Market ◽  
Market Volatility ◽  
Herd Behavior ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
Asymmetric Effects

This study investigates the influence of herd behavior on the Pakistan stock exchange indexes KSE-100 and KSE-30 during bullish and bearish markets. Using the daily market return from 2007 to 2020. We implement the method of main herding measures, Cross-sectional absolute deviation, and Cross-sectional standard deviation, to explore the influence of herd behavior in the emerging market of Pakistan. The results indicate the presence of market-wide herd behavior: (a) along with the different direction of market positive and negative return, (b) when trading volume high, (c) when stock market highly volatile, and (d) during and the post-financial crisis. Moreover, Investors don’t herd when low trading volume and low volatility. Our study fills the gap in the literature and contributes to academic relevance by exploring the influence of herd behavior among both bull and bear periods in markets of Pakistan, it also examines the possible asymmetric effects of herding related to the market with high-low trading volume and market volatility.

scholarly journals Remeasuring Sectoral Herding in the Financial Markets

2020 ◽  
Vol 13 (8) ◽  
pp. 1
Author(s):  
Mohammad K. Elshqirat
Keyword(s):  
Financial Crisis ◽  
Behavioral Finance ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Industrial Sector ◽  
Rank Test ◽  
Herding Behavior ◽  
Absolute Deviation ◽  
Cross Sectional ◽  
The Cross

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–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.

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