Uncertainty, Fear and Herding Behavior: Evidence from Size-Ranked Portfolios

David Y. Aharon

Journal of Behavioral Finance, 2021, vol. 22, issue 3, 320-337

Abstract: This study is aimed at testing the relationship between investors’ uncertainty reflected by market sentiment and herding behavior phenomenon. Using data for 1990–2019 for size-ranked portfolios, the evidence documented here indicates that herding is strongly related to market sentiment as captured by the CBOE’s Volatility Index, the VIX. The results indicate that the VIX, which is also recognized as the fear index, has a substantial impact on herding across all groups and subgroups of size-ranked portfolios. Overall, the effect of VIX exists in most of the quantiles of the cross-sectional absolute deviation distribution. In this context, the scale and magnitude of the fear index impact rises toward the highest parts of the herding distribution. We also show that herding behavior is more pronounced when the market is overwhelmed by sentiment. The findings have several practical implications for investment professionals such as portfolio managers, investment officers, analysts, and other market participants. They also provide academic insights for researchers dealing with market efficiency and investors’ behavior.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/15427560.2020.1774887 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:hbhfxx:v:22:y:2021:i:3:p:320-337

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/hbhf20

DOI: 10.1080/15427560.2020.1774887

Access Statistics for this article

Journal of Behavioral Finance is currently edited by Brian Bruce

More articles in Journal of Behavioral Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().