Herd mentality in the stock market: on the role of idiosyncratic participants with heterogeneous information

Dang, Ha V. and Lin, Mi (2016) Herd mentality in the stock market: on the role of idiosyncratic participants with heterogeneous information. International Review of Financial Analysis, 48 . pp. 247-260. ISSN 1057-5219

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Abstract

This paper examines herd behaviour using aggregate market data for stocks, with a focus on the role of idiosyncratic participants with heterogeneous information. We look at herding asymmetry between up and down markets, taking into consideration the daily price limits and the impact of the recent financial crisis. We also improve upon existing tests for fundamental and non-fundamental herding, as well as proposing a method for investigating herd behaviour of different groups of investors. Empirical evidence based on the Ho Chi Minh Stock Exchange in Vietnam reveals a greater level of herding on up compared to down market days, and a significant reduction in the magnitude of herding following the crisis. We document robust intentional herding even when unintentional (fundamental) herding is factored out. Our empirical results also uncover potential within-group herding and between-group interactions among
arbitrageurs and noise traders in the market.

Keywords:Herd Behaviour, Behavioural Finance, Financial Crises, Stock Markets, bmjdoi, NotOAChecked
Subjects:N Business and Administrative studies > N300 Finance
L Social studies > L111 Financial Economics
Divisions:Lincoln International Business School
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ID Code:24737
Deposited On:18 Oct 2016 13:43

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