Herding Behavior: Overview and Evidence in Vietnam Stock Market

Abstract

Vietnamese stock market is considered immature and unstable as the outside influence of economy and the weakness of market system. Herding behavior tends to exist in emerging market with lack in transparency, efficient information and macro financial management. Therefore, this research is conducted to examine the existence of herding in Vietnamese stock market by using daily stock return from January 2005 to December 2013 with the approach of Chang et al. (2000). However, this research is not only test whether herding exist but also the influence of market movement on herding behavior and it is found that herding presents in both bull and bear market, but more significant in falling market. The testing period is also divided from 2005 to 2008 and 2008 to 2013 to test the affect of extreme market movement to herding. There is strong evidence that herding happened in 2008 when severe financial crisis occurred and caused serious consequences to global economy and Vietnamese market particularly. Finding empirical evidence of herding behavior in Vietnamese stock market not only helps investors to understand clearly about stock pricing but also brings benefit to policy makers to improve the liquidity and the efficiency of stock market to economy.