The nexus between herding behavior and spillover: evidence from G7 and BRICS

Sarra Gouta and Houda BenMabrouk

Review of Behavioral Finance, 2023, vol. 16, issue 2, 360-377

Abstract: Purpose - This study aims at exploring the nexus between herding behavior and the spillover effect in G7 and BRICS stock markets. Design/methodology/approach - The authors used the dynamic connectedness approach TVP-VAR model of Antonakakis et al. (2019) to capture the spillovers across different markets. Moreover, to explore herding behavior, the authors used a modified version of the CSAD measure of Changet al. (2000) including extreme market movements. Finally, to study the link between these two phenomena, the authors estimated a DCC-GARCH model. Findings - The results show that herding behavior exists in the American market and some BRICS markets. Furthermore, spillover between G7 and BRICS increases in times of crisis. Moreover, the authors find a dynamic conditional correlation between herding behavior and spillovers both in the short and long run. The authors conclude that in times of crisis, the transmission of shocks between markets is more frequent, fuelling uncertainty and pushing investors to suppress their own beliefs and follow the general market trends. Originality/value - This paper uses the TVP-VAR model to explore the spillover effect and the DCC-GARCH model to explore the connectedness between herding behavior and the spillover effect in G7 and BRICS countries in both the short and long run.

Keywords: Herding behavior; Spillover; TVP-VAR; CSAD; Dynamic connectedness approach; Extreme movements; DCC-GARCH (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:rbfpps:rbf-01-2023-0016

DOI: 10.1108/RBF-01-2023-0016

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