Herding behavior, market sentiment and volatility: Will the bubble resume?
Brian Lucey (),
Kamel Naoui () and
Gazi Uddin ()
The North American Journal of Economics and Finance, 2017, vol. 42, issue C, 107-131
This paper aims to investigate herding behavior and its impact on volatility under uncertainty. We apply a cross-sectional absolute deviation approach as well as Quantile Regression methods to capture the herding behavior in daily and monthly frequencies in US markets over several time-periods including the global financial crisis. In a novel attempt we modify the empirical CSAD herding modeling by introducing implied volatility as a measure of agent risk expectations. Our findings indicate that herding tends to be intense under extreme market conditions, as depicted in the upper high quantile range of the conditional distribution of returns. During crisis periods herding is observed at the beginning of the crisis and becomes insignificant towards the end. The US market herding behavior exhibits time-varying dynamic trading patterns that can be attributed e.g., to overconfidence or excessive “flight to quality” features, mostly observed in the aftermath of the global financial crisis. Moreover, implied volatility reveals asymmetric patterns and plays a key role in enforcing irrational behavior.
Keywords: Herding; Quantile regression; Implied volatility (search for similar items in EconPapers)
JEL-codes: G1 G14 G15 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:42:y:2017:i:c:p:107-131
Access Statistics for this article
The North American Journal of Economics and Finance is currently edited by Hamid Beladi
More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Haili He ().