Intentional and spurious herding behavior: A sentiment driven analysis

Angela Maria Filip and Maria Miruna Pochea

Journal of Behavioral and Experimental Finance, 2023, vol. 38, issue C

Abstract: By using several Thomson Reuters MarketPsych Indices, this paper explores the nexus between investors’ sentiments and herding behavior in the U.S. and Europe stock markets from January 2005 to June 2021. We apply the state–space model approach of Hwang and Salmon (2004), controlling for changes in investors’ emotionality, and document that herding is a persistent phenomenon in both markets. These effects remain robust when using the alternative methodology of Chang et al. (2004). Moreover, we find evidence of herding behavior under both extreme positive and negative sentiments, with a conspicuous effect on euphoria days, particularly in the U.S. market.

Keywords: Herding behavior; Thomson Reuters MarketPsych Indices (TRMI); Investors’ sentiments; Cross-sectional standard deviation of betas; Cross-sectional absolute deviation of returns (search for similar items in EconPapers)
JEL-codes: G14 G15 G40 G41 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:38:y:2023:i:c:s2214635023000242

DOI: 10.1016/j.jbef.2023.100810

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