Work

Market-wide herding behaviour in the Johannesburg stock exchange (JSE)

Year: 2025

Type: article

Abstract: • We use the traditional cross-sectional absolute deviation (CSAD) and cross-sectional excess co-movement of returns (CSC) to examine the presence of herding in the JSE • We find no evidence of herding under the CSAD, but the CSC confirms existence of synchronicity in investor trading behaviour • Previous and future studies that rely solely on the CSAD should be interpreted with caution; especially in instances where they fail to detect herding, as this may not necessarily imply that herding does not exist. • Our results offer useful insight for portfolio management and investment diversification. This study examines the presence of market-wide herd behaviour in the Johannesburg Stock Exchange (JSE) over the period 1998 to 2018. We use two measures of market-wide herding; the cross-sectional mean absolute deviation of returns (CSAD) and the cross-sectional excess co-movement of returns (CSC), which capture herding toward market consensus and synchronous trade behaviour; respectively. Our results confirm that the CSAD is biased towards no herding if there are extreme price movements or where the average market return is small. Using the CSC, we find evidence of synchronicity in investor trading behaviour . This would suggest that previous and future studies that rely solely on the CSAD should be interpreted with caution; especially in instances where they fail to detect herding, as this may not necessarily imply that herding does not exist. Our results offer useful insight for portfolio management and investment diversification, suggesting that investors should understand the nature and extent of herding and account for this in portfolio allocation, especially the synchronicity of trading patterns as this tends to eliminate the benefits of diversification, which may increase portfolio risk.

Source: Finance Research Open

DOI: 10.1016/j.finr.2025.100064

Authors: Alexa Orton, Godfrey Ndlovu

Institution: University of Cape Town

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Estimated APC paid: $1,000

Funder: University of Cape Town