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Nonlinearities, Herd Behaviour and Market Illiquidity: Evidence from Montenegro

Author

Listed:
  • Vasileios Kallinterakis

    (University of Durham, Department of Economics and Finance)

  • Maria Lodetti

    (British American Tobacco)

Abstract

Research in Finance has shown that herd behaviour is associated with nonlinear dynamics in both developed and emerging stock markets. However the latter are characterized by thin trading which has been found to amplify nonlinearities in returns by enhancing their serial dependence. If so, then the association between herding and nonlinearities may be subject to the thin trading bias. As this issue has never explored before, we investigate this in the context of the New Securities Stock Exchange of Montenegro. Results indicate that correcting for thin trading bears a notable impact upon the observed nonlinearities, yet not the estimated herding, which appears insignificant in all test.

Suggested Citation

  • Vasileios Kallinterakis & Maria Lodetti, 2009. "Nonlinearities, Herd Behaviour and Market Illiquidity: Evidence from Montenegro," Economic Analysis, Institute of Economic Sciences, vol. 42(3-4), pages 7-17.
    • Handle: RePEc:ibg:eajour:v:42:y:2009:i:3-4:p:7-17
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    File URL: http://www.ien.bg.ac.rs/index.php/sr/2009/2009-34
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    Cited by:

    1. Tihana Škrinjarić, 2018. "Revisiting Herding Investment Behavior on the Zagreb Stock Exchange: A Quantile Regression Approach," Econometric Research in Finance, SGH Warsaw School of Economics, Collegium of Economic Analysis, vol. 3(2), pages 119-162, December.

    More about this item

    Keywords

    Herding; thin trading; nonlinearities; Montenegro;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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