Iranian Journal of Finance

Macro Herding Behavior and Its Implications in Tehran Stock Exchange: An Analysis of Extreme Market Conditions

Document Type : Original Article

Authors

Mahdi Karimi 1
Mohammad Ahadzadeh 2

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

2 MSc Student of Financial Management, Faculty of Management and Economic, science and research university, Tehran, Iran.

10.61186/ijf.2024.462197.1475
Abstract
Herd behavior, the tendency of individuals to mimic the actions of a larger group, significantly impacts capital markets by influencing stock prices, market liquidity, and overall market stability. This phenomenon has garnered significant attention in financial studies due to its implications for both institutional and individual investors, contributing to increased market volatility and potential crashes. Various methodologies have been developed to assess herd behavior, revealing its presence across diverse market conditions, including periods of high distress and volatility. This study examines macro herding in the Tehran Stock Exchange from March 2016 to February 2024, using weekly asset returns to measure herd behavior among listed companies. For the first time in Iran, we employ the TV method to calculate herding. The TV method offers two primary advantages: it is adept at identifying macro herding because it captures the collective trading direction of investors, and it operates independently of asset pricing models, minimizing biases associated with those models. Focusing on the collective trading direction, we aim to detect significant deviations in stock price movements indicative of herd behavior. Our findings indicate that herd behavior is more pronounced during extreme market conditions, both positive and negative, with a particularly notable increase during periods of negative market returns. This study provides insights into the dynamics of investor behavior in the Tehran Stock Exchange, highlighting the importance of monitoring such behavior to mitigate its potential adverse effects on market stability.

Keywords

Herd Behavior
Herding
Herding Asymmetry
Extreme Market Conditions
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Iranian Journal of Finance
Volume 8, Issue 3
2024
Pages 98-117

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