Year: 2013
Type: article
Abstract: Herding behaviour can be captured by the relationship between share price movements with the market, typified by beta. We examine herding behaviour for the period 1995 to 2011 and find that it is absent overall, yet present during bear market periods only. When examined alongside the market cycle, herding appears to dramatically fluctuate before a market contraction. Conceptually, herding can be seen as an explanatory factor for the existence of a nonlinear market model. Our findings infer that a negative market reaction (contraction) is preceded by an increase in herding. The evidence of herding in during a South African market contraction can thus impact financial forecasts and volatility estimates of the market. Further, it could possibly indicate the level of confidence of market participants – both experienced and inexperienced individuals tend to follow the group consensus in times of a market downturn, yet deviate from the group consensus in times of a market upturn.
Authors: Yudhvir Seetharam, James Britten
Institution: University of the Witwatersrand
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W2185900643