Does herding affect volatility? Implications for the Spanish stock market
AbstractAccording to rational expectation models, uninformed or liquidity trading make market price volatility rise. This paper sets out to analyse the impact of herding, which may be interpreted as one of the components of uninformed trading, on the volatility of the Spanish stock market. Herding is examined at the intraday level, considered the most reliable sampling frequency for detecting this type of investor behavior, and measured using the Patterson and Sharma (Working Paper, University of Michigan--Dearborn, 2006) herding intensity measure. Different volatility measures (historical, realized and implied) are employed. The results confirm that herding has a direct linear impact on volatility for all of the volatility measures considered, although the corresponding intensity is not always the same. In fact, herding variables seem to be useful in volatility forecasting and therefore in decision making when volatility is considered a key factor.
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Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Quantitative Finance.
Volume (Year): 12 (2012)
Issue (Month): 2 (July)
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Web page: http://www.tandfonline.com/RQUF20
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- Andrea Cipollini & Iolanda Lo Cascio & Silvia Muzzioli, 2013. "Volatility co-movements: a time scale decomposition analysis," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 13111, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
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