Investor herds and regime-switching: Evidence from Gulf Arab stock markets
AbstractThis paper proposes a dynamic herding approach which takes into account herding under different market regimes, with concentration on the Gulf Arab stock markets – Abu Dhabi, Dubai, Kuwait, Qatar and Saudi Arabia. Our results support the presence of three market regimes (low, high and extreme or crash volatility) in those markets with the transition order ‘low, crash and high volatility’, suggesting that these frontier markets have a different structure than developed markets. The results also yield evidence of herding behavior under the crash regime for all of the markets except Qatar which herds under the high volatility regime. The findings of the cross-GCC herding model also demonstrate herding comovements and not spillovers and are also robust to the cross-GCC volatility shocks. The tests that underline the cross-volatility shocks suggest that the crash regime is a true regime and not a statistical artifact. Policy and portfolio diversification implications are discussed.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.
Volume (Year): 23 (2013)
Issue (Month): C ()
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Herding; Gulf Arab stock markets; Dispersion shocks; Markov-switching;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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- Elie I Bouri, 2013. "Correlation and Volatility of the MENA Equity Markets in Turbulent Periods, and Portfolio Implications," Economics Bulletin, AccessEcon, vol. 33(2), pages 1575-1593.
- Demirer, Riza, 2013. "Can advanced markets help diversify risks in frontier stock markets? Evidence from Gulf Arab stock markets," Research in International Business and Finance, Elsevier, vol. 29(C), pages 77-98.
- Demirer, Rıza & Kutan, Ali M. & Zhang, Huacheng, 2014. "Do ADR investors herd?: Evidence from advanced and emerging markets," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 138-148.
- Syed Abul, Basher & Salem, Nechi & Hui, Zhu, 2014. "Dependence patterns across Gulf Arab stock markets: a copula approach," MPRA Paper 56566, University Library of Munich, Germany.
- Klein, Arne C., 2013. "Time-variations in herding behavior: Evidence from a Markov switching SUR model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 291-304.
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