On the effect of herding behavior on dependence structure between stock markets: Evidence from GCC countries

Mouna Youssef and Khaled Mokni ()

Journal of Behavioral and Experimental Finance, 2018, vol. 20, issue C, 52-63

Abstract: This paper aims to test whether herding behavior affects the dependence structure between stock markets in the Gulf Cooperation Council (GCC) countries, by taking account of different market conditions. Based on the cross sectional absolute deviation (CSAD) approach, herding behavior is tested in both static and regime switching framework. The dependence between GCC stock markets is assessed by the DCC-GARCH model. By using weekly data covering the period 2003–2017, empirical results show the presence of herding behavior in all GCC markets except of Bahraini and Kuwaiti markets. Furthermore, the effect of this behavior on the dependence structure is statistically significant and positive. In addition, based on the switching regime framework, results suggest the evidence of a negative effect in low herding regimes and a positive effect in high herding periods. Our findings are of interest and allow for formulating a reliable portfolios design framework for investors and risk managers.

Keywords: Herding behavior; Dependence structure; GCC stock markets; Regime switching (search for similar items in EconPapers)
JEL-codes: G10 G14 G15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:20:y:2018:i:c:p:52-63

DOI: 10.1016/j.jbef.2018.07.003

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