An empirical analysis of herding behaviour: evidence from developed and frontier financial markets

Abdelati Hakmaoui and Ouael El Jebari

International Journal of Computational Economics and Econometrics, 2023, vol. 13, issue 4, 374-403

Abstract: The present article aims at testing for the existence of herding under different market conditions in the financial markets of the USA, France, Morocco, and Tunisia. We use the newly innovated models of the cross-sectional absolute deviation (CSAD) suggested by Pochea et al. (2017), to which we apply a quantile regression for a more thorough analysis. The results confirm the existence of herding bias in the stock markets of the USA and Morocco, whilst the detailed analysis of herding dynamics has suggested different patterns of herding between developed and frontier markets. Herding behaviour is more pronounced in frontier markets under extreme market returns and volatility. This paper concludes that herding may be a viable investing strategy in developed markets under normal conditions, with investors' tendency to rely on the fundamentals during periods of turbulent markets conditions. No evidence of herding is detected in the French and the Tunisian financial markets.

Keywords: herding behaviour; quantile regression; extreme returns; volatility; developed markets; frontier markets; cross-sectional absolute deviation; CSAD. (search for similar items in EconPapers)
Date: 2023
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