Herd mentality in the stock market: On the role of idiosyncratic participants with heterogeneous information

Ha V. Dang and Mi Lin

International Review of Financial Analysis, 2016, vol. 48, issue C, 247-260

Abstract: This paper examines herd behaviour using aggregate market data for stocks, with a focus on the role of idiosyncratic participants with heterogeneous information. We look at herding asymmetry between up and down markets, taking into consideration the daily price limits and the impact of the recent financial crisis. We also improve upon existing tests for fundamental and non-fundamental herding, as well as proposing a method for investigating herd behaviour of different groups of investors. Empirical evidence based on the Ho Chi Minh Stock Exchange in Vietnam reveals a greater level of herding on up compared to down market days, and a significant reduction in the magnitude of herding following the crisis. We document robust intentional herding even when unintentional (fundamental) herding is factored out. Our empirical results also uncover potential within-group herding and between-group interactions among arbitrageurs and noise traders in the market.

Keywords: Herd behaviour; Behavioural finance; Financial crises; Stock markets (search for similar items in EconPapers)
JEL-codes: G01 G02 G11 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:48:y:2016:i:c:p:247-260

DOI: 10.1016/j.irfa.2016.10.005

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