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An Analysis of Herding Behaviour during Market Cycles in South Africa

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  • Yudhvir Seetharam

Abstract

Herding behaviour can be captured by the relationship between share price movements with the market, typified by beta. We examine herding behaviour for the period 1995 to 2011 and find that it is absent overall, yet present during bear market periods only. When examined alongside the market cycle, herding appears to dramatically fluctuate before a market contraction. Conceptually, herding can be seen as an explanatory factor for the existence of a nonlinear market model. Our findings infer that a negative market reaction (contraction) is preceded by an increase in herding. The evidence of herding in during a South African market contraction can thus impact financial forecasts and volatility estimates of the market. Further, it could possibly indicate the level of confidence of market participants – both experienced and inexperienced individuals tend to follow the group consensus in times of a market downturn, yet deviate from the group consensus in times of a market upturn.

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  • Yudhvir Seetharam, 2013. "An Analysis of Herding Behaviour during Market Cycles in South Africa," Journal of Economics and Behavioral Studies, AMH International, vol. 5(2), pages 89-98.
    • Handle: RePEc:rnd:arjebs:v:5:y:2013:i:2:p:89-98
    DOI: 10.22610/jebs.v5i2.383
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    1. Chang, Eric C. & Cheng, Joseph W. & Khorana, Ajay, 2000. "An examination of herd behavior in equity markets: An international perspective," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1651-1679, October.
    2. Hwang, Soosung & Salmon, Mark, 2004. "Market stress and herding," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 585-616, September.
    3. Hachicha, Nizar, 2010. "New sight of herding behavioural through trading volume," Economics Discussion Papers 2010-11, Kiel Institute for the World Economy (IfW Kiel).
    4. Tan, Lin & Chiang, Thomas C. & Mason, Joseph R. & Nelling, Edward, 2008. "Herding behavior in Chinese stock markets: An examination of A and B shares," Pacific-Basin Finance Journal, Elsevier, vol. 16(1-2), pages 61-77, January.
    5. Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-896, July.
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    1. Hang Zhang & Evangelos Giouvris, 2022. "Measures of Volatility, Crises, Sentiment and the Role of U.S. ‘Fear’ Index (VIX) on Herding in BRICS (2007–2021)," JRFM, MDPI, vol. 15(3), pages 1-42, March.

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