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Economic Policy Uncertainty and Herding Behavior: Evidence from the South African Housing Market

Author

Listed:
  • Esin Cakan

    (Department of Economics, University of New Haven, CT 06516, USA)

  • Riza Demirer

    (Department of Economics & Finance, Southern Illinois University Edwardsville, Edwardsville, IL 62026-1102, USA)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Josine Uwilingiye

    (Department of Economics and Econometrics, University of Johannesburg, Auckland Park, 2006, South Africa)

Abstract

This paper examines the link between economic policy uncertainty and herding behaviour in financial markets with an application to the South African housing market. Building on the evidence in the literature that herding behaviour driven by human emotions is not only limited to financial markets, but is also present in real estate investments, we examine the presence of herding in this emerging market via static and dynamic herding tests. While the static model fails to detect herding in the South African housing market, a dynamic model based on a two-regime Markov switching specification shows evidence of herding during the high volatility regime only, consistent with the notion that herd behaviour is primarily driven by increased market uncertainty. Extending our analysis via quantile regressions, we further show that higher quantiles of policy uncertainty are associated with greater likelihood of being in the herding regime, thus establishing a link between policy uncertainty and herding behaviour. Overall, our findings suggest that policy uncertainty can serve as a driver of market inefficiencies, which in our case, is associated by the presence of herding.

Suggested Citation

  • Esin Cakan & Riza Demirer & Rangan Gupta & Josine Uwilingiye, 2019. "Economic Policy Uncertainty and Herding Behavior: Evidence from the South African Housing Market," Working Papers 201921, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201921
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    Cited by:

    1. Imed Medhioub, 2025. "Impact of Geopolitical Risks on Herding Behavior in Some MENA Stock Markets," JRFM, MDPI, vol. 18(2), pages 1-14, February.
    2. Tai-Yuen Hon & Massoud Moslehpour & Kai-Yin Woo, 2021. "Review on Behavioral Finance with Empirical Evidence," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(4), pages 15-41, December.
    3. Geoffrey M. Ngene & Rangan Gupta, 2021. "Impact of Housing Policy Uncertainty on Herding Behavior: Evidence from UK's Regional Housing Markets," Working Papers 202115, University of Pretoria, Department of Economics.
    4. Sibande, Xolani, 2024. "Herding behaviour and monetary policy: Evidence from the ZAR market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 42(C).
    5. Xolani Sibande, 2023. "Monetary policy and herding behaviour in the ZAR market," Working Papers 11053, South African Reserve Bank.

    More about this item

    Keywords

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    JEL classification:

    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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