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Static and regime-dependent herding behavior: An emerging market case study

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  • Ah Mand, Abdollah
  • Sifat, Imtiaz

Abstract

We contribute to behavioral finance literature by demonstrating the relative superiority of a dynamic regime-sensitive approach in unraveling herding phenomenon. Employing daily data in Bursa Malaysia from 1995 to 2016, we first apply two orthodox techniques: cross-sectional standard deviation of returns (CSSD) model of Christie and Huang (2005) and the cross-sectional absolute dispersion (CSAD) model of Chang et al. (2000). The ensuing results appear inconsistent, with only one model capturing herding. In contrast, the dynamic approach with a two-state Markov Switching model reveals that herding is a heavily regime-dependent and non-linear phenomenon. A deeper dive via sectoral decompositions shows that the financial sector and large- and mid-capitalization segments are more herding-prone.

Suggested Citation

  • Ah Mand, Abdollah & Sifat, Imtiaz, 2021. "Static and regime-dependent herding behavior: An emerging market case study," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).
    • Handle: RePEc:eee:beexfi:v:29:y:2021:i:c:s2214635021000101
    DOI: 10.1016/j.jbef.2021.100466
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    More about this item

    Keywords

    Herd behavior; Herding; Behavioral finance; Malaysia; Bursa Malaysia;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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