Herd Behavior and Volatility Persistence in Bombay (Mumbai) Stock Exchange

Ibrahim A Onour

doi:10.18639/merj.2020.958657

Abstract

This paper employs a combination of unit root tests and fractional integration techniques using the ARFIMA(p,d,q) model to test rational bubbles, which implies herd behavior, in Bombay Stock Exchange (BSE). The results in the paper strongly support the evidence of herd behavior in the daily, weekly, and monthly price aggregates. Moreover, the paper also investigates the degree of conditional volatility persistence using FIGARCH(p,d,q) specification to show that the persistence of shocks to stock price and dividend yield volatilities is short-termed.

Highlights

In the wake of economic liberalization, investors are relying more and more on capital markets, as corporate restructuring are becoming commonplace, and strategic alliances are gaining popularity
We test the Bombay stock market (BSE) index and its corresponding dividend yield, for the existence of rational bubbles or mean reversion in the log price level and dividend yield using daily, weekly, and monthly data during the period from September 1, 2010 to September 1, 2018.The data in this research are taken from the website of BSE
The optimal lag length order in ADF is selected by Akaike Information Criteria (AIC)

Summary

INTRODUCTION

In the wake of economic liberalization, investors are relying more and more on capital markets, as corporate restructuring (mergers, divestiture, etc.) are becoming commonplace, and strategic alliances are gaining popularity. In these events, a crucial issue to be addressed is: how should a company or a division thereof be valued? The present value of the expected future dividends of a share represents the fundamental value of the share This is because in an efficient market stock prices change only in response to new information about the change in fundamentals. Along the same lines of the research methodology of Koustas and Serletis (2005), in this

MODELING RATIONAL BUBBLES

TESTING FOR FRACTIONAL INTEGRATION

RESULTS AND DISCUSSION

CONCLUSION