THE BROKERAGE FIRM EFFECT IN HERDING: EVIDENCE FROM INDONESIA

We examine herding behavior of domestic and foreign investors in the Indonesian stock market. We document that both domestic and foreign investors from a particular brokerage firm tend to herd. The foreign investors exhibit a greater propensity to herd than domestic investors. However, when examining investor trading across brokerage firms, we find only weak evidence of herding by domestic investors and no herding by foreign investors. Our overall findings suggest a strong brokerage firm effect on herding but a weak marketwide effect. Moreover, we find evidence that the strong brokerage effect on herding is likely driven by acting on common information.     

Individual and institutional herding and the impact on stock returns: Evidence from Taiwan stock market

Using high frequency intraday data, this paper investigates the herding behavior of institutional and individual investors in the Taiwan stock market. The study finds evidence of herding by both investors but a stronger herding tendency among institutional than among individual investors. Institutional investors herd more on firms with small capitalizations and lower turnovers and they follow positive feedback strategies. The portfolios that institutional investors herd buy outperform those they sell by an average of 1.009% during the 20 days after intense trading episodes. By contrast, individual investors herd more on firms with small sizes and higher turnovers, and they crowd to buy (sell) stocks with negative (positive) past returns. The portfolios that individual investors herd buy underperform those they sell by an average of − 0.829% during the following 20 days. Moreover, these return differences of both investors are more pronounced under a market with higher pressure and among small stocks. These findings suggest that the herding of institutional investors speeds up the price-adjustment process and is more likely to be driven by correlated private information, while individual herding is most likely to be driven by behavior and emotions.     

An Empirical Investigation of Herding Behavior in the U.S. REIT Market

Our study investigates the market-wide herding behavior in the U.S. equity REIT market. Utilizing the quantile regression method, we find that herding is more likely to be present in the high quantiles of the REIT return dispersion. This implies that REIT investors tend to herd under turbulent market conditions. Our results also support the asymmetry of herding behaviors, that is, herding is more likely to occur and becomes stronger in declining markets than in rising markets. In addition, our findings show that the current financial crisis has caused a change in the circumstances under which herding can occur, as we find that during the current crisis REIT investors may not start to herd until the market becomes extremely turbulent whereas during the relatively normal period before the crisis, investors tend to herd when the market is moderately turbulent. Finally, we find that compared with the case of the ‘pre-modern’ era, REIT investors are more likely to herd in the ‘modern’ era, during which herding usually occurs when the market becomes tumultuous. This implies that the switch of REITs from passive externally managed entities into active self-managed ones has made the investors more responsive to market sentiment.     

中国股市羊群效应的区制转移时变性研究

传统研究采用静态CCK模型检验股票市场的羊群效应,但无法描述羊群行为的动态变化以及市场可能受到的外部影响。本文基于中国股市日频交易数据,在静态CCK模型中引入参数的区制转移性质识别股市在不同状态间的转换,并分析中国股市羊群效应和交叉羊群效应的时变特征。研究表明,中国股市运行周期可被划分为两个区制,分别呈现低波动和高波动的行情特征;羊群效应的程度随区制转移而变化,具有区制依存性。其中,沪深股市在高(低)波动区制中,羊群效应更强(弱),相应区制持续时间较短(长);中国台湾股市仅在高波动区制中出现羊群效应,相应区制持续时间较短;中国香港股市无论在低波动区制或是高波动区制中,均不存在羊群效应。此外,沪深A股在低波动区制中对美国股市和中国香港股市存在交叉羊群效应。     

Gender and herding

This study uses a unique dataset from a large anonymous brokerage firm to examine the herding behavior of Chinese individual investors. The empirical evidence reveals that females are more inclined to follow the behavior of ‘same-sex’ investors. Market conditions and stock characteristics affect females and males similarly in that individual investors herd more intensively in the bull market, on stocks with better liquidity and larger market capitalization. We find female investors generally yield lower returns than males when they herd intensively, and this finding is more pronounced during a bull-market period. Outcomes from individual-level herding measurements suggest that portfolio turnover drives the difference in herding between genders.     

Do Qualified Foreign Institutional Investors Herd in Taiwan's Securities Market?

This paper investigates whether and why qualified foreign institutional investors (QFIIs) in Taiwan herd when picking stocks. The evidence shows that QFIIs herd in Taiwan's securities market: They follow each other into and out of the same securities. We identify how the herding behavior forms and how it changes over time. The results suggest that there is an industry effect when QFIIs pick up stocks. They herd on securities classified in specific industries and also prefer stocks with high past returns as well as large firm size, supporting the argument that QFIIs are momentum traders. Characteristic herding and investigative herding explain QFIIs' trading behavior in Taiwan.     

Herding and market volatility

In this paper, we explore the impact of investor herding behavior on stock market volatility. We adopt a direct herding measure based on the variation of cross-sectional stock betas. The measure can be readily separated into positive and adverse components, whereby investors herd towards and away from the market portfolio, respectively. Using A-shares listed in the Chinese equity market from August 2005 to March 2021, we show that the market volatility is Granger caused by the measure, and that there exists an asymmetric effect between positive and adverse herding on volatility. Furthermore, we provide robust evidence that the information contained in the herding measure helps generate significantly improved volatility forecasts and add economic value to investors. Our paper not only contributes to the volatility forecasting literature but also advances our understanding of herding in the equity market.     

Short-selling bans and institutional investors' herding behaviour: Evidence from the global financial crisis

The literature on short-selling restrictions focusses mainly on a ban's impact on market efficiency, liquidity and overpricing. Surprisingly, little is known about the effects of short-sale constraints on herd behaviour. Since institutional investors have come to dominate mature stock markets and rely extensively on short sales, constraining these traders may influence the asset pricing process. We investigate six stock markets that faced bans during the recent global financial crisis. Our empirical evidence shows that short-selling restrictions exhibit either no influence on herding formation or induce adverse herding. This implies a higher dispersion of returns around the market compared to rational asset pricing, which can be interpreted as an increase in uncertainty among stock market investors.     

Do foreign purchases of U.S. stocks help the U.S. stock market?

This paper investigates the relationship between the U.S. S&P 500 stock market and purchases of U.S. corporation stocks by foreign investors. Estimations using monthly data from 1978:1 to 2008:7 under various methodologies show that, controlling for asset prices (interest rates and the yield curve) and inflation, purchases of U.S. stocks by foreign investors have a positive and statistically significant impact on the U.S. stock market performance. We also show that their relationship is time variant. In a global world, the demand-side variable captured by the foreign appetite for U.S. stocks attenuates the negative effects associated with the domestic forces.     

The price impact of foreign institutional herding on large-size stocks in the Taiwan stock market

This study constructs a panel threshold regression model to explore the price impact of foreign institutional herding of firms listed in the Taiwan Stock Exchange during January 2000 to June 2008. Our panel threshold model is constructed to explore the price impact of foreign institutional investors?? herding in the Taiwan stock market after controlling the firm size. By examining the presence of threshold effect, this study analyzes whether firm size would obviously and asymmetrically affect the explanation for the effect of changes in foreign investors?? share ownership on abnormal returns. The empirical results of this study find the significant evidence of threshold effect which divides the stocks into large-size and small-size firms. It is found that foreign institutional investors in the Taiwan stock market tend to hold large-size stocks listed in the Taiwan Stock Exchange. There is an apparent increase in the subsequent abnormal returns on large-size stocks bought in bulk by foreign investors. The signals of changes in share ownership initiated by foreign institutional investors would reveal further information for improving the performance of asset reallocation decisions in Taiwan. The panel threshold model constructed in this paper well describes the price impact of institutional herding yet eschews the possibly subjective data snooping issue resulting from the two-pass sorting method as proposed by previous related researches.     

Institutional herding and its price impact: Evidence from the corporate bond market

We examine the extent to which institutional investors herd in the U.S. corporate bond market and the price impact of their herding behavior. We find that the level of institutional herding in corporate bonds is substantially higher than what is documented for equities, and that sell herding is much stronger and more persistent than buy herding. The price impact of herding is also highly asymmetric. While buy herding facilitates price discovery, sell herding causes transitory yet large price distortions. Such price destabilizing effect of sell herding is particularly pronounced for speculative-grade, small, and illiquid bonds, and during the financial crisis.     

The Effects of Stock Characteristics on the Direction and Extent of Herding by Foreign Institutional Investors in the Taiwan Stock Exchange

We use a dynamic herding measure to explore the causes of foreign institutional investor (FII) herding in the Taiwan stock market and examine the effects of stock characteristics on the direction and extent of such herding. We find that FII herding primarily results from cascades rather than habit investing or momentum trading. The result of a panel smooth transition regression shows that FIIs' negative cascades focus on their largest net purchases of stocks, but FIIs' positive cascades focus on winner and small-sized stocks. To increase portfolio returns, investors can use FIIs' cascades to inform their stock purchases.     

Institutional herding in international markets

This paper studies herding behavior of institutional investors in international markets. First, we document the existence of wide-spread herding in 41 countries (referred to as “target countries” hereafter) in the sample. We then examine the relation between contemporaneous institutional demand and future returns and find that institutional herding stabilizes prices. Next, we examine the relation between institutional investors’ herding behavior and the level of information asymmetry in the target countries. We measure the degree of information asymmetry in each target country along five dimensions: (1) stock market development, (2) ease of access to information, (3) corporate transparency, (4) investor rights, and (5) macroeconomic factors that relate to the information environment. We find evidence that institutional investors herd more in markets characterized by low levels of information asymmetry (high level of information transparency). This result suggests that institutional investors’ herding behavior is likely driven by correlated signals from fundamental information. Lastly, we show that price adjustment is faster in informationally transparent markets.     

Momentum in the Chinese Stock Market: Evidence from Stochastic Oscillator Indicators

ABSTRACT

We explore whether investors earn profits through the use of stochastic oscillator indicators (SOI) for trading stocks. The results reveal that investors might use momentum strategies when trading constituent stocks of SSE 50 as the overbought trading signals emitted by SOI. We infer that the results might be caused by herding behaviors of Chinese investors since overoptimistic moods are likely to exist as evidenced by the 80 percent trading volume traded by individual investors in the Chinese stock market.     

Investors’ Fear and Herding Behavior: Evidence from the Taiwan Stock Market

This article analyzes the influence of investors’ fear on their investment behavior in the Taiwan stock market. This study used the volatility index (VIX) as a barometer of investors’ fear. Our results show that herding behavior increases with the VIX; that is, herding behavior is encouraged by an increase in investors’ fear. Moreover, our results demonstrate that investors react more quickly to bad news than to good news when their fear increases, supporting the hypothesis of the presence of an asymmetric reaction to news. However, investors react more quickly to good news when their fear decreases, indicating an inverse asymmetric reaction. In addition, our empirical results reveal that herding behavior tends to exist on days with a large trading volume.     

Firm specific and macro herding by professional and amateur investors and their effects on market volatility

We find a herding tendency among both amateur and professional investors and conclude that the propensity to herd is lower in the professionals. These results are obtained both when we consider herding into individual stocks and herding into stocks in general. Herding depends on the firm’s systematic risk and size, and the professionals are less sensitive to these variables. The differences between the amateurs and the professionals may be attributable to the latter’s superior financial training. Most of the results are consistent with the theory that herding is information-based. We also find that the herding behavior of the two groups is a persistent phenomenon, and that it is positively and significantly correlated with stock market returns’ volatility. Finally, herding, mainly by amateurs, causes market volatility in the Granger causality sense.     

Asset pricing in China's domestic stock markets: Is there a logic?

China's stock markets have grown rapidly since their inception and have become an increasingly important emerging market for international investors. However, there are few systematic studies on how asset prices are formed in Chinese domestic equity markets; popular financial media even depict the market as irrational. In this paper, we study the asset pricing mechanism in the nascent Chinese stock markets, with the objective of identifying variables that capture the cross-sectional variation in average stock returns. We focus on the effects of various market imperfections in China. We find that while the market risk (beta) is not priced, there is a significantly negative relationship between firm-specific risk and expected returns. Chinese investors are willing to pay a significant premium for more liquid stocks or for dividend-paying stocks. Furthermore, investors value local A-shares more if there are offshore counterparts (e.g., B- and H-shares) for foreigners, implying that a Chinese firm with a foreign shareholder base has a lower cost of capital, ceteris paribus. Lastly, as with U.S. and other mature markets, firm size and the book-to-market ratio are systematically related to stock returns. Given market imperfections, stocks are priced rather rationally in China, despite the widespread perception to the contrary.     

Herding in the German Mutual Fund Industry

This paper analyses the trading activity of German mutual funds in the 1998–2002 period to investigate whether German mutual fund managers are engaged in herding behaviour. Another objective of the study is to determine the impact of this herd‐like trading on stock prices. Our results provide evidence of herding and positive feedback trading by German mutual fund managers. We show that a significant portion of herding detected in the German market is associated with spurious herding as a consequence of changes in benchmark index composition. Investigating the impact of mutual fund herding on stock prices, we find that herding seems to neither destabilise nor stabilise stock prices.     

Market sentiment: a key factor of investors’ imitative behaviour

The aim of this paper is to explore herding behaviour among investors to determine its rational and emotional component factors and identify relationships among them. We apply causality tests to evaluate the impact of return and market sentiment on herding intensity. The herding intensity is quantified using the measure developed by Patterson and Sharma (2006) . The research was conducted during the period 1997–2003 in the Spanish stock market, where the presence of herding has been confirmed. The results reveal that the herding intensity depends on past returns and sentiment or subjective assessments and confirm the presence of both a rational and an emotional factor.