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Herding behaviour and market dynamic volatility: evidence from the US stock markets

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  • Mouna Jlassi
  • Kamel Naoui

Abstract

This paper documents the effect of herd behaviour on the US S%P100 and US DJIA stock market's stocks volatility. We investigated the presence and the change of herding behaviour in the US S%P100 and US DJIA stock markets during January 2000 to July 2012. Results provide strong and coherent evidence on the occurrence of herding at only daily frequency. In particular, the findings indicated a significant change in herding tendency across sub-periods of the subprime crisis. The different tests report that herding is only prevailing during bull period and during days of high trading volumes. Moreover, empirical evidences report a significant relationship between market sentiment and herd behaviour. We show that herding contributes not only in fuelling market excessive volatility but also in raising the housing bubble during the subprime crisis. Surprisingly, we find that asymmetric herding exists during days of low volatility.

Suggested Citation

  • Mouna Jlassi & Kamel Naoui, 2015. "Herding behaviour and market dynamic volatility: evidence from the US stock markets," American Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 4(1), pages 70-91.
    • Handle: RePEc:ids:amerfa:v:4:y:2015:i:1:p:70-91
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    Cited by:

    1. Hang Zhang & Evangelos Giouvris, 2022. "Measures of Volatility, Crises, Sentiment and the Role of U.S. ‘Fear’ Index (VIX) on Herding in BRICS (2007–2021)," JRFM, MDPI, vol. 15(3), pages 1-42, March.
    2. Muskan Sachdeva & Ritu Lehal & Sanjay Gupta & Aashish Garg, 2021. "What make investors herd while investing in the Indian stock market? A hybrid approach," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 15(1), pages 19-37, September.

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