Abstract
The main purposes of this quantitative study were to examine the existence of herding behavior among investors in Amman stock exchange (ASE) at market and sector level in addition to testing the behavior during the market rising and falling and examining whether the behavior existence is different before and after the global financial crisis of 2008. The theoretical base of the study was the behavioral finance which assumes that investors are not completely rational and they may follow others when taking investment decisions. The main enquires of the study were about the existence of herding in the Jordanian market, whether it's affected by conditions of market rising and falling, and whether it's affected by the financial crisis. A quantitative design was employed to achieve the purposes of this study which covers the period 2000 - 2018. Data were obtained from ASE website and analyzed using ordinary least squares method. The results indicated that herding is absent in the Jordanian market if tested at market level while it exists in services and industrial sectors if tested at sectors level. The financial crisis did not affect the presence of herding at market level while it did affect the behavior in services and industrial sectors. Moreover, the results revealed that market condition of rising and falling affected herding at market level but not at sectors level. It is also concluded that the global financial crisis changed the presence of herding behavior during conditions of rising and falling in market and in each sector.
Highlights
In the traditional finance, it's assumed that markets are efficient and investors are rational but in behavioral finance, markets are not efficient and investors are normal people who may be affected by cognitive problems (Statman, 2014); these cognitive problems include over and under confidence, over-reaction, cognitive bias, and herding (Shafi, 2014)
Based on the study results, it can be concluded that herding is absent in the Jordanian market when studied at market level which is in line with the results reached by Al-Shboul (2012a) and opposite to the results concluded by Obaidat (2016), Ramadan (2015), and Nasarudin et al (2017)
The results of this study revealed that the existence of herding at market level is not different before and after the global financial crisis which is the same conclusion reached by Al-Shboul (2012a) and opposite to the conclusions of Angela-Maria, Maria, and Miruna (2015) and BenSaïda, Jlassi, and Litimi (2015) who claimed that the global financial crisis affected the herding behavior among investors
Summary
It's assumed that markets are efficient and investors are rational but in behavioral finance, markets are not efficient and investors are normal people who may be affected by cognitive problems (Statman, 2014); these cognitive problems include over and under confidence, over-reaction, cognitive bias, and herding (Shafi, 2014). Herd behavior in financial markets was studied in many areas including its existence (Curto, Falcão & Braga, 2017; Hammami & Boujelbene, 2015; Mertzanis & Allam, 2018), the differences between individual and institutional herding (Hsieh, 2013; Li, Rhee, & Wang, 2017; Trenca, Pece & Mihut, 2015), the causes of herding (Chang & Su, 2017; Fang, Lu, Yau & Lee, 2017; Shusha & Touny, 2016), and the impact of herding on investment decisions (Akbar, Salman, Mughal, Mehmood & Makarevic, 2016; Bakar & Yi, 2016; Kengatharan & Kengatharan, 2014)
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