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A note on the empirical test of herding: a threshold regression approach

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  • Saumitra, Bhaduri

Abstract

The paper aims at investigating herding behaviour in equity market by applying an alternative econometric methodology. The paper applies the threshold test developed by Hansen [2000] to standard herding model in order to capture a non-linear effect of extreme market movement on the trading behaviour of the participants. Using the econometric model with threshold effect, the paper finds little evidence for market-wide herding for the Indian equity market. Even in the extreme market conditions, participants appear to discriminate between different securities, as predicted by the rational asset pricing paradigm.

Suggested Citation

  • Saumitra, Bhaduri, 2012. "A note on the empirical test of herding: a threshold regression approach," MPRA Paper 38037, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:38037
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    File URL: https://mpra.ub.uni-muenchen.de/38037/1/MPRA_paper_38037.pdf
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    References listed on IDEAS

    as
    1. Gleason, Kimberly C. & Mathur, Ike & Peterson, Mark A., 2004. "Analysis of intraday herding behavior among the sector ETFs," Journal of Empirical Finance, Elsevier, vol. 11(5), pages 681-694, December.
    2. Hwang, Soosung & Salmon, Mark, 2004. "Market stress and herding," Journal of Empirical Finance, Elsevier, vol. 11(4), pages 585-616, September.
    3. Russ Wermers, 1999. "Mutual Fund Herding and the Impact on Stock Prices," Journal of Finance, American Finance Association, vol. 54(2), pages 581-622, April.
    4. Tan, Lin & Chiang, Thomas C. & Mason, Joseph R. & Nelling, Edward, 2008. "Herding behavior in Chinese stock markets: An examination of A and B shares," Pacific-Basin Finance Journal, Elsevier, vol. 16(1-2), pages 61-77, January.
    5. Demirer, RIza & Kutan, Ali M., 2006. "Does herding behavior exist in Chinese stock markets?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(2), pages 123-142, April.
    6. Harrison Hong & Jeffrey D. Kubik & Amit Solomon, 2000. "Security Analysts' Career Concerns and Herding of Earnings Forecasts," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 121-144, Spring.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Herding India Threshold Regression;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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