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Does volatility mediate the impact of analyst recommendations on herding in Malaysian stock market?

Author

Listed:
  • Loang Ooi Kok

    (School of Management, Universiti Sains Malaysia, 11800 Gelugor, Penang, Malaysia)

  • Ahmad Zamri

    (School of Management, Universiti Sains Malaysia, 11800 Gelugor, Penang, Malaysia)

Abstract

This study examines the mediating role of volatility on the relationship between analyst recommendations and herding in the Malaysian stock market by using data from 2010 to 2020. Volatility is measured by realized volatility and the Parkinson estimator. The empirical evidence suggests that herding exists and realized volatility intervenes in the direct relationship between analyst recommendations and herding. The release of analyst recommendations causes realized volatility to fluctuate and investors are triggered by the volatility, which in turn follow the crowd to herd. Nonetheless, the Parkinson estimator is found to be insignificant, which infers that investors have anchor bias and rely on previous day stock prices to trade and herd. This paper provides an alternative explanation to the direct relationship and enhances the study of information-based herding. It contributes to academicians, practitioners, investors and policymakers to understand the herding of investors in responding to the arrival of new information.

Suggested Citation

  • Loang Ooi Kok & Ahmad Zamri, 2021. "Does volatility mediate the impact of analyst recommendations on herding in Malaysian stock market?," Economics and Business Review, Sciendo, vol. 7(4), pages 54-71, December.
    • Handle: RePEc:vrs:ecobur:v:7:y:2021:i:4:p:54-71:n:1
    DOI: 10.18559/ebr.2021.4.4
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    References listed on IDEAS

    as
    1. Koopman, Siem Jan & Jungbacker, Borus & Hol, Eugenie, 2005. "Forecasting daily variability of the S&P 100 stock index using historical, realised and implied volatility measurements," Journal of Empirical Finance, Elsevier, vol. 12(3), pages 445-475, June.
    2. Kuei-Yuan Wang & Yu-Sin Huang, 2020. "Effects of Transparency on Herding Behavior: Evidence from the Taiwanese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(8), pages 1821-1840, July.
    3. Narasimhan Jegadeesh & Woojin Kim, 2010. "Do Analysts Herd? An Analysis of Recommendations and Market Reactions," The Review of Financial Studies, Society for Financial Studies, vol. 23(2), pages 901-937, February.
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    More about this item

    Keywords

    behavioural finance; herding; analyst recommendation; volatility; stock market;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • G40 - Financial Economics - - Behavioral Finance - - - General

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