Abstract
This paper examines the presence of the herding phenomenon in the South African market between January 2011 and December 2019. The novel contribution of this paper is to investigate if there is an asymmetric herding phenomenon during three market conditions associated to market returns, trading volume and volatility in the market. Using the CSAD measure, we provide no evidence of the herding phenomenon in the South African market. Also we report no evidence of this phenomenon during increasing and decreasing market; during days with low trading volumes and during days with high and low volatility in the market. However, we find evidence of a weak herding phenomenon during days with high trading volumes. More specifically, the herding parameter is negative and statistically at ten percent level. These findings are eminent for investors and regulators to improve their comprehension of the South African market and the investor behavior. This research can also help investors to conceive their trading strategies during various market conditions.
Highlights
A rational investor must carry out a complete study of the financial market before taking the best investment decision
This paper investigates the existence of the herding phenomenon in the South African market from January 2011 to December 2019
This paper examines if there is an asymmetric herding phenomenon during three market conditions associated to market returns, trading volume and volatility in the market
Summary
A rational investor must carry out a complete study of the financial market before taking the best investment decision. This is a difficult task due to the intricacy, uncertainty of the financial market and the speed in decision making to be able to watch out for opportunities All these difficulties obligate investors to rely on mental shortcuts which often lead to wrong and irrational decision. The bubbles and crashes known in the history and which are the damage of the herding phenomenon push practitioners to take more interest in this phenomenon for a healthy financial markets In this context, the research problem in this paper may be expressed as follows: Is there an asymmetric herding phenomenon during three market conditions associated to market returns, trading volume and volatility in the market?. Section five presents the findings and section six summarizes the conclusions
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