Herding Behaviour and Volatility Transmission Mechanisms: Evidence from Vietnam's Emerging Stock Market

Nhu Quan Nguyen () and Ngoc Nhu Y Nguyen ()

Asian Business Research Journal, 2025, vol. 10, issue 9, 88-98

Abstract: This study investigates the relationship between herding behaviour and stock price volatility transmission mechanisms within Vietnam's emerging equity market, employing a comprehensive panel data methodology spanning 2005-2017. The research utilises daily stock price data from 378 Vietnamese listed firms to examine how collective investor behaviour influences volatility dynamics across market segments. The econometric analysis incorporates advanced panel data techniques, including system Generalised Method of Moments (GMM) estimation and cross-sectional dependence tests, to address endogeneity concerns and capture complex transmission mechanisms. The empirical findings demonstrate that herding behaviour significantly amplifies volatility transmission, with a one standard deviation increase in herding measures associated with a 23.7% increase in conditional volatility. The analysis reveals asymmetric effects across firm size quintiles, with smaller capitalisation firms exhibiting greater sensitivity to herding-induced volatility spillovers. Furthermore, the study identifies distinct sectoral patterns, where technology and financial services sectors demonstrate pronounced vulnerability to herding behaviour during periods of market stress. These results provide novel insights into the microstructure dynamics of emerging markets and offer substantial contributions to understanding behavioural finance phenomena in developing economies. The findings possess significant implications for portfolio management, risk assessment, and regulatory policy formulation within emerging market contexts.

Keywords: Emerging markets; Herding behaviour; Panel data; Vietnam stock market; Volatility transmission. (search for similar items in EconPapers)
Date: 2025
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