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Herding and positive feedback trading on property stocks

Author

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  • Rhea Tingyu Zhou
  • Rose Neng Lai

Abstract

Purpose - Motivated by the unique characteristics and profit generating nature of real estate investments, this paper aims to study if investors herd differently in corresponding securities versus other non‐real estate securities. Design/methodology/approach - The authors choose the Hong Kong stock market to form the sample to distinguish the herd behavior of the property stocks, if any, from stocks of other categories. The authors separate stocks into two portfolios, those made up of property stocks versus non‐property stocks, because it is widely known that property stocks have high market volatility and domination of institutional investors. Findings - The authors find a persistent and significant smaller herding in property stocks. The result of a reverse U‐shape intraday herding pattern also provides a possible clue to previous studies of a U‐shape in intraday volatility pattern. The authors document that recent announcements of an increase in the short‐term interest rate have an additive effect on the herd behavior of market participants in trading property stocks. Lastly, on the conjecture that herding will further exemplify price instability arising from positive feedback trading while investors engage in positive feedback trading in both property stocks and non‐property stocks, such activity in the latter group lasts for a longer period. Furthermore, price instability of property stocks disappears at a faster pace than the counterpart. Originality/value - This study shows that property stocks are more efficiently traded by investors than other types of stocks, at least in the Hong Kong stock market.

Suggested Citation

  • Rhea Tingyu Zhou & Rose Neng Lai, 2008. "Herding and positive feedback trading on property stocks," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 26(2), pages 110-131, March.
    • Handle: RePEc:eme:jpifpp:v:26:y:2008:i:2:p:110-131
    DOI: 10.1108/14635780810857872
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    Citations

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    Cited by:

    1. Ahdi N. Ajmi & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2014. "Real Estate Markets and Uncertainty Shocks: A Variance Causality Approach," Working Papers 201436, University of Pretoria, Department of Economics.
    2. Omokolade Akinsomi & Yener Coskun & Rangan Gupta, 2018. "Analysis of Herding in Reits of an Emerging Market: The Case of Turkey," Journal of Real Estate Portfolio Management, Taylor & Francis Journals, vol. 24(1), pages 65-81, January.
    3. Massimo Guidolin & Manuela Pedio & Milena T. Petrova, 2023. "The Predictability of Real Estate Excess Returns: An Out-of-Sample Economic Value Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 67(1), pages 108-149, July.
    4. Omokolade Akinsomi & Goodness C. Aye & Vassilios Babalos & Fotini Economou & Rangan Gupta, 2016. "Real estate returns predictability revisited: novel evidence from the US REITs market," Empirical Economics, Springer, vol. 51(3), pages 1165-1190, November.
    5. Papapostolou, Nikos C. & Pouliasis, Panos K. & Kyriakou, Ioannis, 2017. "Herd behavior in the drybulk market: an empirical analysis of the decision to invest in new and retire existing fleet capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 104(C), pages 36-51.
    6. SeungHan Ro & Paul Gallimore & Sherwood Clements & Gang-Zhi Fan, 2019. "Herding Behavior among Residential Developers," The Journal of Real Estate Finance and Economics, Springer, vol. 59(2), pages 272-294, August.
    7. David G. Green, 2023. "Emergence in complex networks of simple agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 419-462, July.
    8. Ashish Kumar Garg & Subrata Kumar Mitra & Dilip Kumar, 2016. "Do foreign institutional investors herd in emerging markets? A study of individual stocks," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 281-300, September.
    9. Philippas, Nikolaos & Economou, Fotini & Babalos, Vassilios & Kostakis, Alexandros, 2013. "Herding behavior in REITs: Novel tests and the role of financial crisis," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 166-174.
    10. SeungHan Ro & Paul Gallimore, 2014. "Real Estate Mutual Funds: Herding, Momentum Trading and Performance," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 190-222, March.

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