Herding Behavior Research Articles

Herding behavior and the dynamics of ESG performance in the European banking industry

We investigate the dynamics of ESG performance and explore the potential driving force, including the role of herd behavior among banks. Utilizing Phillips and Sul (2007)'s panel data convergence model and data from the EURO STOXX Banks index, we identify a significant divergence in ESG performance followed by convergence towards separate clusters or clubs after 2018. Notably, banks with lower Return on Equity (ROE) and leverage demonstrate herding tendencies towards improved ESG performance, emphasizing sustainability objectives and community ties. The study contributes to understanding the potential driving forces behind ESG convergence among EU banks.

Communication, networks and asset price dynamics: a survey

In this paper, we provide a wide-ranging survey of the state of the art in the area of communication and asset price dynamics. We start out by documenting empirical evidence that social communication influences investment decisions and asset prices, before turning to the main modelling approaches in the literature (both past and present). We discuss models of belief-updating based on observed performance; models of herd behaviour; and models with social interactions that arise from preferences for conformity or contrarianism. Our main contribution is to introduce readers to a social network approach which has been widely used in the opinion dynamics literature, but only recently applied to asset pricing. In the final part, we show how recent contributions to both modelling and empirical work are using the social network approach to improve our understanding of financial markets and asset price dynamics. We conclude with some thoughts on fruitful avenues for future research.

Role of Herd Behavior on Investment Decision of Mutual Fund Investors in India - An Empirical Study

Behaviour finance helps to understand the attitude and perception of investors on their investment decisions. Every investor differs from others in all the aspects due to a range of factors like demographic and socio-economic background. An optimal investment decision plays a vital role and is a major deliberation.
 This paper analyses the role of herding behaviour on Indian mutual fund investors. By referring to psychology and pointing out the imperfections of a human mind, it reveals mistakes committed by both individual and professional investors.
 This study captures the impact of herding behavior and overconfidence biases on the investors’ decision-making in India The proposed study will collects the necessary data through questionnaires distributed among 113 respondents who were investing in mutual fund. The results show that overconfidence and herding bias have significant positive impact on investment decision. Overall results conclude that individual investors have limited knowledge and more prone towards making psychological errors. The findings of the study also indicate the existence of these four behavioral biases on individual investment decisions. This study will be helpful to financial intermediaries to advice their clients.

Effect of spatial memory on a predator–prey model with herd behavior

In this paper, we introduce spatial memory into a predator–prey model with herd behavior. Taking memory-based diffusion coefficient and average memory period of predators as control parameters, we obtain the stable conditions of the positive equilibrium of system and prove the existence of Hopf bifurcation. In addition, a double Hopf bifurcation occurs at the intersection of the nonhomogeneous Hopf bifurcation curves, and a spatially nonhomogeneous quasi-periodic pattern can be observed near the double Hopf bifurcation point by numerical simulation.

Herding Behaviour in Investors: A Study of Tadawul Financial Market

Purpose: The study investigates herding behaviour in the Tadawul stock exchange based on daily data between the years 1999 to 2019 .
 
 Theoretical framework: Existence of uncertain situations affect the confidence level of the investor. This leads to investors changing their approach from rational to behavioural wherein they prefer to follow the judgements of others, thus engaging in herding behaviour. Several factors such as institutional investment, external factors and fundamental factors impact herding behaviour.
 
 Methodology: The study uses OLS regression approach and accounts for the various factors such as institutional investment (percentage ownership in a stock, institutional ownership type, nationality) , external factors (global financial crisis, political instability, oil market volatility) and fundamental factors (P/E ratio, Share Turnover, Market Capitalization, Market Liquidity).
 
 Findings: The empirical results indicate that herding is not present during the period of study. External factors and fundamental factors do not significantly impact the Cross-Sectional Absolute Deviation (CSAD) and there is no evidence of herding when accounting for these variables. However, CSAD is significantly impacted with the percentage of institutional investment, ownership and the nationality of institutional investors and there is evidence of herding when accounting for these variables.
 
 Research Implications: As further scope the study proposes that the length of the time period may affect the findings and more robust analysis can be conducted by structural break models to understand the relative significance of the factors that may lead to herding during different time periods.
 
 Originality: Institutional investment related factors have a significant impact on Herding behaviour of investors in the Tadawul stock exchange.

Herd behavior in cryptocurrency market: evidence of network effect

PurposeThis study examines herd behavior in the cryptocurrency market at the aggregate level and the determinants of herd behavior, such as asymmetric market returns, the coronavirus disease 2019 (COVID-19) pandemic, 2021 cryptocurrency's bear market and the network effect.Design/methodology/approachThe authors applied the Google Search Volume Index (GSVI) as a proxy for the network effect. Since investors who are interested in a particular issue have a common interest, they tend to perform searches using the same keywords in Google and are on the same network. The authors also investigated the daily returns of cryptocurrencies, which are in the top 100 market capitalizations from 2017 to 2022. The authors also examine the association between return dispersion and portfolio return based on aggregate market herding model and employ interactions between herding determinants such as, market direction, market trend, COVID-19 and network effect.FindingsThe empirical results indicate that herding behavior in the cryptocurrency market is significantly captured when the market returns of cryptocurrency tend to decline and when the network effect of investors tends to expand (e.g. such as during the COVID-19 pandemic or 2021 Bitcoin crash). However, the results confirm anti-herd behavior in cryptocurrency during the COVID-19 pandemic or 2021 Bitcoin crash, regardless of the network effect.Practical implicationsThese findings help investors in the cryptocurrency market make more rational decisions based on their determinants since cryptocurrency is an alternative investment for investors' asset allocation. As imitating trades lead to return comovement, herd behavior in the cryptocurrency has a direct impact on the effectiveness of portfolio diversification. Hence, market participants or investors should consider herd behavior and its underlying factors to fully maximize the benefits of asset allocation, especially during the period of market uncertainty.Originality/valueMost previous studies have focused on herd behavior in the stock market. Although some researchers have recently begun studying herd behavior in the cryptocurrency market, the empirical results are inconclusive due to an incorrectly specified model or unclear determinants.

Herding Behaviour in ESG Stock Index: Evidence from Emerging Markets

This article studies the herding behaviour of environmental, social and governance stock indices in the emerging market based on International Monetary Fund emerging market criteria. We use the daily data as a sample. Cross-sectional absolute deviation is employed to identify the herding behaviour of the investors. The findings report that all the indices do not exhibit herding behaviour, even under the upwards and downwards episodes of the market. When oil price and implied volatility are included in the model, the herding only existed in some samples, such as Egypt and India, during upwards oil price fluctuation and implied volatility, respectively. Meanwhile, Brazil, China and Taiwan also show evidence of herding behaviour during downwards oil price fluctuation. It is due to the large size of the companies with solid governance norm included in the indices, and the information on the companies are widely available. It gives the implication that the investors do not rely on others in the investment decision.

THE EFFECT OF COVID-19 ON HERDING BEHAVIOR: EVIDENCE FROM AFRICAN EMERGING MARKETS

The emergence of Coronavirus Disease (COVID-19) pandemic, which spread all over the world, created a shock effect on financial markets as in all areas. With fear and panic, investors couldn’t make rational decisions and tried to imitate what other investors were doing. Unlike the idea of the efficient market hypothesis, investors showed herd behavior during the emergence of the pandemic. Hence, this paper investigates whether COVID-19 increased herding behavior in African emerging markets. We use a sample from the Johannesburg Stock Exchanges (JSE) and the Egyptian Exchange (EGX) for the period from January 4, 2010, to June 30, 2020. We find strong evidence of the presence of herding behavior in both stock markets during the COVID-19 period. Robust results are found in different sub-periods. The result of the study is important to help individual and institutional investors as well as financial regulators to find a solution to prevent herd behavior.

Herd behavior in Vietnam’s stock market: Impacts of COVID-19

Herd behavior in Vietnam’s stock market: Impacts of COVID-19

The Influence of Herding Behavior and Overconfidence Bias on Investment Decisions of Millennial Generation Cryptocurrency Investors in Malang City

This exploration aims to dissect the influence of herding behavior and overconfidence-bias on investment decisions by millennial generation Cryptocurrency investors in Malang City. This type of research is explanatory research with a quantitative approach. This research aims to test and explain the influence of the direct relationship between the variables herding behavior and overconfidence-bias on investment decisions by cryptocurrency investors through hypothesis testing. This research has a sample size of 99 Millennial Generation Cryptocurrency investors in Malang City which was obtained through distributing a Google Form questionnaire using a purposive sampling technique. This research uses the F-test with the SPSS 23 application. The results of this research show that the herding behavior variable has a significant effect on investment decisions. However, this is different, the overconfidence_bias variable does not have a significant effect on investment decisions by millennial generation Cryptocurrency investors in the city of Malang.

HERDING BIAS INVESTOR MASA NEW NORMAL PANDEMI COVID-19

This study examines the determinants of herding bias in investors in Indonesia during the Covid-19 New Normal period. This study was conducted for six months to survey the behavior of 232 investors with a single investor identification in the Indonesian capital market who were haphazardly selected to test the herding bias model. The results of Confirmatory Factor Analysis show that reputational factors, social proof, lack of awareness, volatility in global markets, underconfidence, optimism, bandwagon effect, and speculation are the determinants of investor herding bias in Indonesia. The results of this study also prove that the reputation factor is the dominant factor determining herding behavior, where investors will follow the behavior of their community to maintain their reputation. The second factor that contributes highly to determining herding bias is social proof, which means that Indonesian investors consider social roles in the decision-making process. We hope the results of this study can provide researchers and practitioners with a better understanding of herding behavior which is part of the theory of financial behavior.

Evaluation of the efficiency of computer monitoring based on selected parameters of dairy herd behaviour in relation to daily milk yield

The study analysed the indicators of welfare and motor activity of animals to support farmers in taking decisions on breeding management in Polish Holstein-Friesian black-and-white cows. The survey involved 236 cows during a 305-day lactation period, kept in an open-sided free stall barn, before and after furnishing the complete computer management system DeLaval DelPro. It evaluated the motor activity and breeding parameters of cows assigned to three groups (I, II, III), depending on daily milk production. It was demonstrated that the highest-yielding cows spent more time (12.5 vs 10.5 h/day) lying down and resting than the lowest-yielding cows. The highest motor activity of cows (29.66% of the herd) was observed in the morning between 3:00 AM and 6:00 AM, and the lowest (6.78% of the herd) in the evening between 9:00 PM and 00:00. The monitoring significantly (P ≤ 0.05) improved all the evaluated breeding parameters (insemination index, inter-pregnancy interval, and calving interval) in the highest-yielding group of cows. Based on the outcomes, the use of livestock management software should be recommended to improve the welfare and breeding indicators of Polish Holstein-Friesian black-and-white cows.

Decoding Investor Decision-Making: Unraveling Psychological Factors and Educational Moderation in Financial Markets

This study delves into the influence of psychological factors on investors' decision-making, with a focus on the moderating role of education. The target population comprises 883 domestic individual investors registered in the Pakistan Stock Exchange. Employing a structured questionnaire, opinions were gathered from a sample of 275 financial domestic individual investors. The findings reveal a positive and significant association between risk propensity, risk perception, and investment decisions. Conversely, herding behaviour exhibits a negative and significant impact, indicating that heightened herding behaviour reduces investors' decision to invest. Further analysis underscores the combined effect (moderating effect) of risk propensity financial literacy, revealing a significant yet negative impact on investors' decisions, while risk perception financial literacy demonstrates a positive and significant effect. The concluding table highlights the positively significant presence of loss aversion bias.

Mechanisms of True and False Rumor Sharing in Social Media: Collective Intelligence or Herd Behavior?

Social media platforms disseminate extensive volumes of online content, including true and, in particular, false rumors. Previous literature has studied the diffusion of offline rumors, yet more research is needed to understand the diffusion of online rumors. In this paper, we examine the role of lifetime and crowd effects in social media sharing behavior for true vs. false rumors. Based on 126,301 Twitter cascades, we find that the sharing behavior is characterized by lifetime and crowd effects that explain differences in the spread of true as opposed to false rumors. All else equal, we find that a longer lifetime is associated with less sharing activities, yet the reduction in sharing is larger for false than for true rumors. Hence, lifetime is an important determinant explaining why false rumors die out. Furthermore, we find that the spread of false rumors is characterized by herding tendencies (rather than collective intelligence), whereby the spread of false rumors becomes proliferated at a larger cascade depth. These findings explain differences in the diffusion dynamics of true and false rumors and further offer practical implications for social media platforms.

Information Acquisition Ability and Farmers’ Herd Behavior in Rice–Crayfish Coculture System Adoption

Rice–crayfish coculture systems (RCSs) have been widely promoted in China as an efficient circular agriculture model that can simultaneously improve rice quality, raise the efficiency of utilization of resources, and increase farmers’ incomes. However, the herd behavior of farmers in the adoption of the rice–crayfish coculture system warrants more attention, as the rational adoption of this system by farmers is a prerequisite for achieving the above objectives. This paper analyses the formation mechanism of farmers’ herd behavior based on information cascade theory. Using micro-survey data from 603 farmers in China and a bivariate probit model, we examine the existence of herding effects in the adoption of RCSs by farmers and the inhibitory effect of information acquisition capability on herd behavior. To address possible endogeneity issues, we also conducted a robustness test using the IV-probit model. Furthermore, we tested for between-group differences in agricultural income between farmers with herding adoption and non-herding adoption. The study reveals that the larger the number of prior adopters, the higher the probability of blind adoption behavior by farmers, indicating the existence of a herd effect. Information acquisition ability could significantly inhibit the herd behavior of farmers in the adoption of RCSs. We also found that farmers’ herd behavior in the adoption of these systems was not economically rational. Based on the research findings, we proposed several constructive suggestions for policy perfection.

Behavioural finance in emerging markets: A bibliometric analysis

AbstractThis investigation analyses the academic research development over the last 30 years on behavioural finance in the emerging markets. We use Web of Science database to collect the bibliographic material and a VOS Viewer software to identify similarities by using bibliometric techniques. The results show a significant growth of research in this area, especially after the subprime crisis and highlights the emergence of sub areas of interest to researchers which have arisen in a natural fashion and without a previously defined orientation. There is still no consensus in the literature regarding the causes of this phenomenon and new questions emerge to expand research on herd behaviour in the emerging markets.

Non-normal interactions create socio-economic bubbles

In social networks, bursts of activity often result from the imitative behavior between interacting agents. The Ising model, along with its variants in the social sciences, serves as a foundational framework to explain these phenomena through its critical properties. We propose an alternative generic mechanism for the emergence of collective exuberance within a broad class of agent-based models. We show that our model does not require the fine-tuning to a critical point, as is commonly done to explain bursts of activity using the Ising model and its variants. Instead, our approach hinges on the intrinsic non-symmetric and hierarchical organization of socio-economic networks. These non-normal networks exhibit transient and unsustainable surges in herd behavior across a wide range of control parameters even in the subcritical regime, thereby eliminating the need for the - arguably artificial - fine-tuning proximity to a critical point. To empirically validate our framework, we examine the behavior of meme stocks and establish a direct linkage between the size of financial bubbles and the degree of non-normality in the network, as quantified by the Kreiss constant. Our proposed mechanism presents an alternative that is more general than prevailing conceptions of instabilities in diverse social systems.

The nexus between herding behavior and spillover: evidence from G7 and BRICS

PurposeThis study aims at exploring the nexus between herding behavior and the spillover effect in G7 and BRICS stock markets.Design/methodology/approachThe authors used the dynamic connectedness approach TVP-VAR model of Antonakakis et al. (2019) to capture the spillovers across different markets. Moreover, to explore herding behavior, the authors used a modified version of the CSAD measure of Chang et al. (2000) including extreme market movements. Finally, to study the link between these two phenomena, the authors estimated a DCC-GARCH model.FindingsThe results show that herding behavior exists in the American market and some BRICS markets. Furthermore, spillover between G7 and BRICS increases in times of crisis. Moreover, the authors find a dynamic conditional correlation between herding behavior and spillovers both in the short and long run. The authors conclude that in times of crisis, the transmission of shocks between markets is more frequent, fuelling uncertainty and pushing investors to suppress their own beliefs and follow the general market trends.Originality/valueThis paper uses the TVP-VAR model to explore the spillover effect and the DCC-GARCH model to explore the connectedness between herding behavior and the spillover effect in G7 and BRICS countries in both the short and long run.

The evolution and social cost of herding mentality promote cooperation

Herding behavior has a social cost for individuals not following the herd, influencing human decision-making. This work proposes including a social cost derived from herding mentality into the payoffs of pairwise game interactions. We introduce a co-evolutionary asymmetric model with four individual strategies (cooperation vs. defection and herding vs. non-herding) to understand the co-emergence of herding behavior and cooperation. Computational experiments show how including herding costs promotes cooperation by increasing the parameter space under which cooperation persists. Results demonstrate a synergistic relationship between the emergence of cooperation and herding mentality: the highest cooperation is achieved when the herding mentality also achieves its highest level. Finally, we study different herding social costs and its relationship to cooperation and herding evolution. This study points to new social mechanisms, related to conformity-driven imitation behavior, that help to understand how and why cooperation prevails in human groups.

Herding Behaviour of Syariah Banks Stocks in Indonesia

Herding behavior is deemed as anomaly in the capital market. This behavior indicates a group of investors that might not be confidence enough in their investment performance that led them to mimic other investors' strategy of investments. In this regard, herding behavior is then considered as irrational action in which the investors are not able to utilize the available information and further use it to achieve the expected capital gain. The investors are reactive and most likely sensitive to rumors than valid information available to public. As this rumor is widely spread among investors, the related corporate news tends to drive them in making either buying or selling actions without any fundamental considerations. Pervious studies in this theme of study have proven the herding behavior in conventional approach. However, not many studies consider to put religion comprehension. Thus, we position religion comprehension as a mediating factor in investigating the relationship between our main variable of interests. The outcome of empirical study indicates that (i) there is a positive relationship between stock return and herding behavior in syariah banks, (ii) Trading volume and herding behavior at Islamic Banks in Indonesia are positively related; (iii) The level of religion comprehension and herding behavior at Islamic Banks in Indonesia is also positively related. However, even though all the variables studied show a positive relationship, the same relationship pattern does not apply if the intervening variable is included in the form of a mediation model. Thus, it can be inferenced that the level of religion comprehension (haj quota) cannot mediate the relationship among main variable of interests. Keywords: Herding behaviour, Return, Trading volume, religion comprehension