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Herding effect on idiosyncratic volatility in U.S. industries

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  • BenSaïda, Ahmed

Abstract

This paper investigates the effect of herding behavior on excessive market idiosyncratic volatility in the U.S. stock market at a sectoral level. We carefully modify the cross sectional absolute deviation model to include trading volume and investors’ sentiment as herding triggers, and show that herding is indeed present in almost every sector of the U.S. stock market during turmoil periods. Furthermore, our particularly designed GJR-GARCH model provides new insights on the effect of herding and volume turnover on the conditional volatility. The sample covers all listed companies in the American stock market over four major turmoil periods.

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  • BenSaïda, Ahmed, 2017. "Herding effect on idiosyncratic volatility in U.S. industries," Finance Research Letters, Elsevier, vol. 23(C), pages 121-132.
    • Handle: RePEc:eee:finlet:v:23:y:2017:i:c:p:121-132
    DOI: 10.1016/j.frl.2017.03.001
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    More about this item

    Keywords

    Herding; Turmoil; Volume turnover; Investor sentiment; Conditional volatility;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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