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Price limit regulation and herd behavior in the Vietnamese stock market

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  • Ha, Tran Viet

Abstract

This paper attempts to analyze the effectiveness of price limit regulation in the context that herd behavior is prevalent in the Vietnamese stock market during the period January-2003 to August-2006. Employing the approach proposed by Kim et al. (1997) we find supporting evidences for the three hypotheses of volatility spillover, delayed price discovery process, and trade interference. By using the model of Christea and Huang (1995) with some modification and extension we realize herding behavior occurs quite frequently, whenever the market moves at least 1% or after large price changes of individual stocks appear. However, as the herding pattern is likely the same after the large individual returns regardless of limit-hit existence, it is hardly an alternative explanation for the three hypotheses.

Suggested Citation

  • Ha, Tran Viet, 2007. "Price limit regulation and herd behavior in the Vietnamese stock market," OSF Preprints 6ru75, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:6ru75
    DOI: 10.31219/osf.io/6ru75
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    References listed on IDEAS

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    1. Kim, Kenneth & Rhee, S Ghon, 1997. "Price Limit Performance: Evidence from the Tokyo Stock Exchange," Journal of Finance, American Finance Association, vol. 52(2), pages 885-899, June.
    2. Robert Connolly & Chris Stivers, 2003. "Momentum and Reversals in Equity‐Index Returns During Periods of Abnormal Turnover and Return Dispersion," Journal of Finance, American Finance Association, vol. 58(4), pages 1521-1556, August.
    3. Seasholes, Mark S. & Wu, Guojun, 2007. "Predictable behavior, profits, and attention," Journal of Empirical Finance, Elsevier, vol. 14(5), pages 590-610, December.
    4. Vuong, Quan-Hoang, 2004. "New empirical results on anomalies and herd behavior: Vietnam stock market 2000-2004," OSF Preprints zk7ax, Center for Open Science.
    5. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66, March.
    6. André Farber & Quan-Hoang Vuong, 2004. "Some new results on anomalies and herd behavior: Vietnam stock market," ULB Institutional Repository 2013/14174, ULB -- Universite Libre de Bruxelles.
    7. Lehmann, B.N., 1989. "Commentary: Volatility, Price Resolution, And The Effectiveness Of Price Limits," Papers t9, Columbia - Center for Futures Markets.
    8. Miller, M.H., 1989. "Commentary: Volatility, Prices Resolution, And Effectiveness Of Price Limits," Papers t8, Columbia - Center for Futures Markets.
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    Cited by:

    1. Sayyed Sadaqat Hussain Shah & Muhammad Asif Khan & Natanya Meyer & Daniel F. Meyer & Judit Oláh, 2019. "Does Herding Bias Drive the Firm Value? Evidence from the Chinese Equity Market," Sustainability, MDPI, vol. 11(20), pages 1-20, October.

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