Investigating the effect of return jumps on herd behavior and its asymmetry in the Tehran Stock Exchange Market

Osoolian, Mohammad; Badri, Ahmad; Karimi, Mahdi

doi:10.61186/ijf.2024.428599.1446

Investigating the effect of return jumps on herd behavior and its asymmetry in the Tehran Stock Exchange Market

Document Type : Original Article

Authors

Mohammad Osoolian ¹

Ahmad Badri ²

Mahdi Karimi ³

¹ Assistant Prof., Department of Financial Management, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran

² Associate prof., Department of Financial Management, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran.

³ MSc. Department of Financial Management, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran.

10.61186/ijf.2024.428599.1446

Abstract

Herding behavior is typically described as the inclination of investors to follow the actions of others in their investment decisions. Herding represents a behavioral tendency in which investors rely on collective rather than private information. Herd literature shows that return jumps can serve as a representation of information arrival, leading to significant price changes. This proposition is introduced due to its potential impact on investor sentiment, assuming greater awareness among other investors as a factor related to the occurrence of herding. Furthermore, it is believed that, in conditions of negative market returns, market participants are more inclined to mimic the behavior of others due to the stress induced by the risk incurred. In the background of previous research, evidence indicates the occurrence of herd behavior on days with return jumps and negative returns. In this study, we investigated herding behavior and its asymmetry through the utilization of return jumps, employing the CSAD method. Under circumstances in which there were no occurrences of return jumps and without taking into account negative market returns, our research was unable to verify the existence of herding at the market level. Nevertheless, when return jumps and negative market returns were present, the occurrence of herd behavior was proven, and the asymmetry of herd behavior was also verified.

Keywords

Stock Market

Herd Behavior

CSAD Method

Herd Asymmetry

Return Jump

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