Destabilizing Impacts of Herding Behaviour in Portuguese Capital Market

Authors

  • Gabriela Marques Leite Department of Management Research Centre for the Study of Population, Economics and Society Lusofona University of Porto
  • Carlos Machado-Santos Department of Economics, Sociology and Management University of Trás-os-Montes and Alto Douro
  • Amélia Ferreira da Silva Institute of Accounting and Administration Centre for Organisational and Social Studies Polytechnic Institute of Porto

DOI:

https://doi.org/10.46661/revmetodoscuanteconempresa.2312

Keywords:

herding behavior, behavioral finances, volatility, capital markets, investors rationality, comportamiento gregario, finanzas conductuales, volatilidad, mercado de capitales, racionalidad de inversores

Abstract

The present work seeks to analyze the herding behavior phenomenon as a destabilizing factor of the capital market, while studying the relation between the herding behavior phenomenon and market profitability and volatility. The results allow us to verify the existence of a significant intensity of herding, especially when price variation occurs. Conversely, asymmetrical and elevated volatility levels ensue, with a higher probability of profit than losses of the same magnitude. However, results are less visible when one looks at the causality relation between herding and market volatility. This paper contributes to a deeper understanding of herding behavior and its relation with market efficiency.

 

. 

Downloads

Download data is not yet available.

Author Biography

Gabriela Marques Leite, Department of Management Research Centre for the Study of Population, Economics and Society Lusofona University of Porto

Departamento de Contabilidade

References

Alevy, J., Haigh, M., and List, J. (2003). Information cascades: evidence from a field experiment with financial market professional. Working Paper 03-15. Department of Agricultural and Resource Economics The University of Maryland, College Park

Avramov, D., Chordia, T., and Goyal, A. (2006). The impact of trades on daily volatility. The Review of Financial Studies 19 (4): 1241-1277.

Baker, M., and Wurgler, J. (2007). Investor Sentiment in the Stock Market. Journal of Economic Perspectives 21(2), 129-151

Baker, M., Wurgler, J., and Yuan, Y. (2012). Global, Local, and Contagious Investor Sentiment. Journal of Financial Economics 104(2): 272-287

Banerjee, A. (1992). A model of herd behavior. Quarterly Journal of Economics 107: 797-817.

Bhushan, R., Brown, D., and Mello, A. (1997). Do noise traders create their own space? Journal of Financial and Quantitative Analysis 32: 25-45.

Bikhchandani, S., and Sharma, S. (2000). Herd Behavior in Financial Markets. IMF Staff Papers, 47(3), 279–310. Retrieved from http://www.jstor.org/stable/3867650

Bikhchandani, S., Hirshleifer, D. and Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy 100: 992-1096.

Black, F. (1976). The dividend puzzle. Journal of Portfolio Management 2: 5-8.

Blasco, N., Corredor, C., Ferruela, G. (2009). The implications of herding on volatility. The case of the Spanish stock market. Working paper. Universidad Publica de Navarra. DT 98/09.

Chan, K., and Fong, W. (2006). Realized volatility and transactions. Journal of Banking & Finance 30 (7): 2063-2085.

Chang, E., Cheng, J., and Khorana, A. (2000). An examination of herd behavior in equity markets: an international perspective. Journal of Banking and Finance 24: 1651-1679.

Daigler, R., and Wiley, M. (1999). The impact of trader type on the futures volatility – volume relation. Journal of Finance 52: 2297-2316.

Del Guercio, D. (1996). The distorcing effect of the prudent-man laws on institutional equity investments. Journal of Financial Economics 40: 31-62.

Devenow, A. and Welch, I. (1996). Rational herding in financial economics. European Economic Review 40, 603-615

Farrar, D., and Girton, L. (1981). Institutional investors and concentrations of financial power: berle and means revisited. Journal of Finance 36: 369-381.

Filip, A., Pece, A., Pochea, M. (2015). An Empirical Investigation of Herding Behavior in CEE Stock Markets under the Global Financial Crisis, Procedia Economics and Finance 25: 354-361

Friedman, B. (1984). Discussion of Shiller. Brookings Papers on Economic Activity: 504-508.

Froot, K., Scharfstein, D., Stein, J. (1992). Herd on the street: informational inefficiencies in a market with short-term speculation. Journal of Finance 47: 1461-1484.

Gallant, R., Rossi, P., and Tauchen, G. (1992). Stock priecs and volume. Review of Financial Studies 5: 199-242.

Garman, M., and Klass, M. (1988). On the estimation of security price volatilities from historical data. Journal of Business 53: 67-78.

Gompers, P. and Metrick, A. (2001). Institutional investors and equity prices. Quartely Journal of Economics 116: 229-260.

Henker, J., Henker, T., and Mitsios, A. (2006). Do investors herd intraday in the Australian equities? International Journal of Managerial Finance 2 (3): 196-219.

Hirshleifer, D. and Teoh, S. (2001). Herd Behavior and Cascading in Capital Markets: A Review and Synthesis. Munich Personal RePEc Archive MPRA. Paper No. 5186, posted 7. October 2007 Online at http://mpra.ub.uni-muenchen.de/5186/

Hirshleifer, D., Subrahmanyam, A., Titman, S. (1994). Security analysis and trading patterns when some investors receive information before others. Journal of Finance 49: 1665-1698.

Hwang, S., and Salmon, M. (2004). Market stress and herding. Journal of Empirical Finance 11: 585-616.

Jain, A., and Gupta, S. (1987). Some Evidence on "Herding" Behavior of U. S. Banks. Journal of Money, Credit and Banking, 19(1), 78–89.

Lakonishok, J.; Shleifer, A.; Thaler, R., and Vishny, R.W. (1994). Contrarian investment, extrapolation, and risk. Journal of Finance 49: 1541-1478.

Lintner, G. (1998). Behavioral finance: Why investors make bad decisions. The Planner 13 (1): 7-8.

Lugo, S., Croce, A., and Faff, R. (2015). Herding Behavior and Rating Convergence among Credit Rating Agencies: Evidence from the Subprime Crisis. Review of Finance, 19 (4):1703-1731.

Maug, E., and Naik, N. (2011). Herding and delegated portfolio management. The impact of relative performance evaluation on asset allocation. Quarterly Journal of Finance, 01:265

Parkinson, M. (1980). The random walk problem: extreme value method for estimating the variance of the displacement. Journal of Business 53: 61-65.

Patterson, D., and Sharma, V. (2006). Do traders follow each other at the NYSE? Working paper, disponível em SSRN (http://ssrn.com/abstract=712401)

Puckett, A., and Yan, X. (2008). The determinants and impact of short-term institutional herding. Working paper. Available at SSRN (http://ssrn.com/abstract=972254)

Rajan, R. (1994). Why credit policies fluctuate: a theory and some evidence. Quartely Journal of Economics 436: 399-442.

Roll, R. (1992). A mean/variance analysis of tracking error. Journal of Portfolio Management (Summer): 13-22.

Scharfstein, D., and Stein, J. (1990). Herd behavior and investment. American Economic Review 80: 465-479.

Schwert, W. (1989). Why does stock market volatility change over time?. Journal of Finance 44: 1115-1153.

Sias, R. (2004). Institutional herding. Review of Financial Studies 17 (1): 165-206.

Tan, L., Chiang, C., Mason, J., and Nelling, E. (2008). Herding behavior in Chinese stock markets: An examination of A and B shares. Pacific-Basin Finance Journal, 16 (1–2), p. 61-77

Trueman, B. (1994). Analyst forecasts and herding behavior. Review of financial studies 7: 97-124.

Wermers, R. (1999). Mutual fund herding and the impact sock prices. Journal of Finance 54: 581-622.

Downloads

Published

2018-06-30

How to Cite

Marques Leite, G., Machado-Santos, C., & Ferreira da Silva, A. (2018). Destabilizing Impacts of Herding Behaviour in Portuguese Capital Market . Journal of Quantitative Methods for Economics and Business Administration, 25, Páginas 3 a 22. https://doi.org/10.46661/revmetodoscuanteconempresa.2312

Issue

Vol. 25 (2018)

Section

Articles

License

Copyright (c) 2018 Journal of Quantitative Methods for Economics and Business Administration

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Submission of manuscripts implies that the work described has not been published before (except in the form of an abstract or as part of thesis), that it is not under consideration for publication elsewhere and that, in case of acceptance, the authors agree to automatic transfer of the copyright to the Journal for its publication and dissemination. Authors retain the authors' right to use and share the article according to a personal or instutional use or scholarly sharing purposes; in addition, they retain patent, trademark and other intellectual property rights (including research data). 

All the articles are published in the Journal under the Creative Commons license CC-BY-SA (Attribution-ShareAlike). It is allowed a commercial use of the work (always including the author attribution) and other derivative works, which must be released under the same license as the original work.

Up to Volume 21, this Journal has been licensing the articles under the Creative Commons license CC-BY-SA 3.0 ES. Starting from Volume 22, the Creative Commons license CC-BY-SA 4.0 is used.