Herding and excessive risk in the American stock market: A sectoral analysis

Houda Litimi, Ahmed BenSaïda and Omar Bouraoui

Research in International Business and Finance, 2016, vol. 38, issue C, 6-21

Abstract: This paper aims to test whether herding behavior is a driving force of excessive market volatility and increasing bubbles in the US stock market at a sectoral level. Trading volume turnover and investors’ sentiment are ubiquitous factors besides market return to fuel herding movement in most sectors. Our sample covers all listed companies in the American stock market over four major turmoil periods. Granger causality test shows that herding is a vital ingredient to increasing bubbles in some sectors, but not all. Moreover, herding and trading volume have an inhibiting effect on both overall and in-sector market volatility in large markets, as opposed to concentrated markets commonly studied in the literature.

Keywords: Herding; Bubbles; Volume turnover; Investor sentiment; Conditional volatility (search for similar items in EconPapers)
JEL-codes: C22 G14 G15 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:38:y:2016:i:c:p:6-21

DOI: 10.1016/j.ribaf.2016.03.008

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