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Investigation of Herding Behaviour in Developed and Developing Countries: Does Country Governance Factor Matters?

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  • Ahmad Fawwaz Mohd Nasarudin

    (Faculty of Economics and Management Sciences, International Islamic University Malaysia, Malaysia.)

  • Bany Ariffin Amin Noordin

    (Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia.)

  • Siong Hook Law

    (Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia.)

  • Mohd Hisham Yahya

    (Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia.)

Abstract

Although numerous studies have been conducted on herding behaviours, only a limited number has focused on the governance factor that may influence herding activity. This paper examines whether countries’ governance influences herding decisions among investors. Applying the cross-sectional absolute deviation (CSAD) method on data from 60 countries, the results on herding estimation based on the country level segmented into three panels reveal that the strict governance would help to minimize herding activity. Among countries with strict governance, only six report herding activity. However, the results show that herding activity is reported more often in countries with moderate or weak governance. Our results also suggest that herding activity will be practiced more in the country where the information dissemination is less efficient due to its less-strict governance level.

Suggested Citation

  • Ahmad Fawwaz Mohd Nasarudin & Bany Ariffin Amin Noordin & Siong Hook Law & Mohd Hisham Yahya, 2017. "Investigation of Herding Behaviour in Developed and Developing Countries: Does Country Governance Factor Matters?," Capital Markets Review, Malaysian Finance Association, vol. 25(2), pages 1-14.
    • Handle: RePEc:mfa:journl:v:25:y:2017:i:2:p:1-14
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    3. Oi-Ping Chong & A.N. Bany-Ariffin & Annuar Md Nassir & Junaina Muhammad, 2019. "An Empirical Study of Herding Behaviour in China’s A-Share and B-Share Markets: Evidence of Bidirectional Herding Activities," Capital Markets Review, Malaysian Finance Association, vol. 27(2), pages 37-57.

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    More about this item

    Keywords

    Herding; governance; market efficiency.;
    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
    • G19 - Financial Economics - - General Financial Markets - - - Other

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