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The nexus between herding behavior and spillover: evidence from G7 and BRICS

Author

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  • Sarra Gouta
  • Houda BenMabrouk

Abstract

Purpose - This study aims at exploring the nexus between herding behavior and the spillover effect in G7 and BRICS stock markets. Design/methodology/approach - The authors used the dynamic connectedness approach TVP-VAR model of Antonakakis et al. (2019) to capture the spillovers across different markets. Moreover, to explore herding behavior, the authors used a modified version of the CSAD measure of Changet al. (2000) including extreme market movements. Finally, to study the link between these two phenomena, the authors estimated a DCC-GARCH model. Findings - The results show that herding behavior exists in the American market and some BRICS markets. Furthermore, spillover between G7 and BRICS increases in times of crisis. Moreover, the authors find a dynamic conditional correlation between herding behavior and spillovers both in the short and long run. The authors conclude that in times of crisis, the transmission of shocks between markets is more frequent, fuelling uncertainty and pushing investors to suppress their own beliefs and follow the general market trends. Originality/value - This paper uses the TVP-VAR model to explore the spillover effect and the DCC-GARCH model to explore the connectedness between herding behavior and the spillover effect in G7 and BRICS countries in both the short and long run.

Suggested Citation

  • Sarra Gouta & Houda BenMabrouk, 2023. "The nexus between herding behavior and spillover: evidence from G7 and BRICS," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 16(2), pages 360-377, September.
    • Handle: RePEc:eme:rbfpps:rbf-01-2023-0016
    DOI: 10.1108/RBF-01-2023-0016
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