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Herding behavior, market sentiment and volatility: Will the bubble resume?
European University of Institute, Italy; IPAG Business Sch, France.
Tilburg University, Netherlands.
Trinity Coll Dublin, Ireland; Trinity Coll Dublin, Ireland.
University of Manouba, Tunisia; University of Manouba, Tunisia.
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2017 (English)In: The North American journal of economics and finance, ISSN 1062-9408, E-ISSN 1879-0860, Vol. 42, p. 107-131Article in journal (Refereed) Published
Abstract [en]

This paper aims to investigate herding behavior and its impact on volatility under uncertainty. We apply a cross-sectional absolute deviation approach as well as Quantile Regression methods to capture the herding behavior in daily and monthly frequencies in US markets over several time-periods including the global financial crisis. In a novel attempt we modify the empirical CSAD herding modeling by introducing implied volatility as a measure of agent risk expectations. Our findings indicate that herding tends to be intense under extreme market conditions, as depicted in the upper high quantile range of the conditional distribution of returns. During crisis periods herding is observed at the beginning of the crisis and becomes insignificant towards the end. The US market herding behavior exhibits time-varying dynamic trading pattern that can be attributed e.g., to overconfidence or excessive "flight to quality" features, mostly observed in the aftermath of the global financial crisis. Moreover, implied volatility reveals asymmetric patterns and plays a key role in enforcing irrational behavior. (C) 2017 Published by Elsevier Inc.

Place, publisher, year, edition, pages
ELSEVIER SCIENCE INC , 2017. Vol. 42, p. 107-131
Keyword [en]
Herding; Quantile regression; Implied volatility
National Category
Economics
Identifiers
URN: urn:nbn:se:liu:diva-143733DOI: 10.1016/j.najef.2017.07.005ISI: 000417010600007OAI: oai:DiVA.org:liu-143733DiVA, id: diva2:1166715
Note

Funding Agencies|EU [656136]; Tom Hedelius Foundation

Available from: 2017-12-15 Created: 2017-12-15 Last updated: 2017-12-15

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Uddin, Gazi Salah
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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • oxford
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf