Herding Behavior in CEE Stock Markets Under Asymmetric Conditions: A Quantile Regression Analysis

ABSTRACT

This article investigates herding behavior in ten Central and East European (CEE) stock markets by using daily data on stock prices for 384 companies from January 2, 2003, to December 31, 2013. Our study is based on the methodology developed by Chang, Cheng, and Khorana [2000], adapted to detect herding behavior under different market conditions. The authors use quantile regression analysis as an estimation method and find evidence of herding behavior in all CEE countries, except for Poland and Romania. When the market is up and the trading volume increases, investors become enthusiastic and optimistic, neglecting their own information and following each other in buying transactions. Conversely, when the market declines, driven by panic and fear, investors follow the market consensus and engage in overselling transactions.

KEYWORDS:

• Herding behavior
• Asymmetric effects
• Cross-sectional absolute deviation of returns
• CEE stock markets

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Erratum

Acknowledgments

The authors are grateful to an anonymous referee for helpful suggestions and comments on an earlier version of this article.

Funding

The authors acknowledge that this work was supported by a grant of the Romanian National Authority for Scientific Research and Innovation, CNCS – UEFISCDI, project number PN-II-RU-TE-2014-4-1827.