Static and regime-dependent herding behavior: An emerging market case study

Abdollah Ah Mand and Imtiaz Sifat

Journal of Behavioral and Experimental Finance, 2021, vol. 29, issue C

Abstract: We contribute to behavioral finance literature by demonstrating the relative superiority of a dynamic regime-sensitive approach in unraveling herding phenomenon. Employing daily data in Bursa Malaysia from 1995 to 2016, we first apply two orthodox techniques: cross-sectional standard deviation of returns (CSSD) model of Christie and Huang (2005) and the cross-sectional absolute dispersion (CSAD) model of Chang et al. (2000). The ensuing results appear inconsistent, with only one model capturing herding. In contrast, the dynamic approach with a two-state Markov Switching model reveals that herding is a heavily regime-dependent and non-linear phenomenon. A deeper dive via sectoral decompositions shows that the financial sector and large- and mid-capitalization segments are more herding-prone.

Keywords: Herd behavior; Herding; Behavioral finance; Malaysia; Bursa Malaysia (search for similar items in EconPapers)
JEL-codes: C63 D84 F4 G1 G15 G2 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:29:y:2021:i:c:s2214635021000101

DOI: 10.1016/j.jbef.2021.100466

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