Saumitra, Bhaduri (2012): A note on the empirical test of herding: a threshold regression approach.
Download (187kB) | Preview
The paper aims at investigating herding behaviour in equity market by applying an alternative econometric methodology. The paper applies the threshold test developed by Hansen  to standard herding model in order to capture a non-linear effect of extreme market movement on the trading behaviour of the participants. Using the econometric model with threshold effect, the paper finds little evidence for market-wide herding for the Indian equity market. Even in the extreme market conditions, participants appear to discriminate between different securities, as predicted by the rational asset pricing paradigm.
|Item Type:||MPRA Paper|
|Original Title:||A note on the empirical test of herding: a threshold regression approach|
|Keywords:||Herding India Threshold Regression|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates|
|Depositing User:||Saumitra Bhaduri|
|Date Deposited:||11. Apr 2012 15:20|
|Last Modified:||22. Feb 2013 02:43|
Bikhchandani S., Sunil. S. (2000). Herd Behavior in Financial Markets . IMF Working Paper WP/00/48. Chang, E.C., Cheng, J.W., Khorana, A., (2000), “An Examination of Herd Behavior in Equity Markets: An International Perspective”, Journal of Banking and Finance 24, 1651-1679.
Christie, W. G., and Huang, R. D., (1995), “Following the pied piper: Do individual returns herd around the market? Financial Analyst Journal, Vol. 51 (4), pp. 31-37.
Demirer, R. and Kutan, A. M., (2006), “Does herding behavior exist in Chinese stock market?” Journal of International Financial Markets, Institutions and Money, 16, 123-142.
Devenow, A., Welch, I., (1996), “Rational herding in financial economics”, European Economic Review 40, 603–615.
Gleason, K.C., Mathur, I, Peterson, M.A., 2004, Analysis of Intraday Herding Behavior among the Sector ETFs, Journal of Empirical Finance 11, 681-694.
Goetzman, W. (1995). “Discussion: On Fads, Crashes and Asymmetric Information," in Richard Sylla and Mike Bordo, Eds. Anglo-American Finance Systems: Institutions and Markets in the 20th Century, Irwin Publishers, 1995.
Hansen B. (2000) “Sample splitting and threshold estimation”, Econometrica, vol 69, No 1555-1596..
Hong, H., Kubik, J. D., Solomon, A., (2000), “Security Analysts’ Career Concerns and Herding of Earnings Forecasts”, RAND Journal of Economics 31, 121–144.
Hwang, S., and Salmon, M., (2004), “Market stress and herding,” Journal of Empirical Finance, Vol. 11, pp.585-616.
Nofsinger, J.R., and R.W. Sias (2002). “Herding and Feedback Trading by Institutional and Individual Investors”, Journal of Finance, 54, 2263-2295.
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.
Scharfstein, D.S., Stein, J.C., (1990), Herd Behavior and Investment, American Economic Review 80, 465-479.
Wermers, R., (1999), Mutual Fund Herding and the Impact on Stock Prices, Journal of Finance 54, 581-622.
Weiner, R. J., and Green, M. A., (2004) “Do birds of a feather flock together? Speculator herding in dervatives markets,” Working Paper George Washington University