Institutional Herding in a Transition Economy: Evidence from Bulgaria
Keywords:
institutional trading, institutional herd behaviour, Bulgarian stock exchange
Abstract
The present paper examines whether Bulgarian institutional investors engage in herd behaviour. For this purpose, we use quarterly data for funds' holdings. The results reveal that the trades of institutional investors are intertemporally dependent, and that herd behaviour is present. Further, we test whether herding is due to intent or not. Our results reveal that herding is conditional upon the market direction, market-wide volatility, investors' economic sentiment, and market volume. Thus, we draw the conclusion that herding is intentional.
References
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29. Henker, J., Thomas Henker and Mitsios, A. (2006). "Do investors herd intraday in Australian equities?" International Journal of Managerial Finance, Vol. 2 (3), pp.: 196 - 219.
30. Hirshleifer, D. and Teoh, S., Hong (2003). "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis." European Financial Management, Vol. 9 (1), pp.: 25-66.
31. Holmes, P., Kallinterakis, V. and Ferreira, M. P. L. (2011). "Herding in a Concentrated Market: a Question of Intent." European Financial Management, Vol. pp.: no-no.
32. Hong, H. G., Kubik, J. and Solomon, A. (2000). "Security analysts' career concerns and herding of earning forecasts." RAND Journal of Economics, Vol. 31, pp.: 121-144.
33. Hung, W., Lu, C.-C. and Lee, C. F. (2010). "Mutual fund herding its impact on stock returns: Evidence from the Taiwan stock market." Pacific-Basin Finance Journal, Vol. 18 (5), pp.: 477-493.
34. Hwang, S. and Salmon, M. (2004). "Market stress and herding." Journal of Empirical Finance, Vol. 11 (4), pp.: 585-616.
35. Keynes, J.M. (1936). The General Theory of Employment, Interest and Money. London: MacMillan.
36. Kim, Kenneth A. and Nofsinger, John R. (2005). "Institutional Herding, Business Groups, and Economic Regimes: Evidence from Japan." The Journal of Business, Vol. 78 (1), pp.: 213-242.
37. Kim, W. and Wei, S.-J. (2002a). "Foreign portfolio investors before and during a crisis." Journal of International Economics, Vol. 56 (1), pp.: 77-96.
38. Kim, W. and Wei, S.-J. (2002b). "Offshore investment funds: monsters in emerging markets?" Journal of Development Economics, Vol. 68 (1), pp.: 205-224.
39. Lakonishok, J., Shleifer, A. and Vishny, R. W. (1992). "The impact of institutional trading on stock prices." Journal of Financial Economics, Vol. 32 (1), pp.: 23-43.
40. Liao, T.-L., Huang, C.-J. and Wu, C.-Y. (2011). "Do fund managers herd to counter investor sentiment?" Journal of Business Research, Vol. 64 (2), pp.: 207-212.
41. Luetje, T., and Menkhoff, L. (2007). "What Drives Home Bias? Evidence from Fund Managers' Views." International Journal of Finance and Economics, Vol. 12 (1), pp.: 2135.
42. Maug, E., and Naik, N. (1996). "Herding and Delegated Portfolio Management." London Business School, Mimeo.
43. Nofsinger, J. R. and Sias, R. W. (1999). "Herding and Feedback Trading by Institutional and Individual Investors." The Journal of Finance, Vol. 54 (6), pp.: 2263-2295.
44. Radelet, S. and Sachs, J. (1998). "The onset of the East Asian financial crisis." Unpublished Working Paper. Harvard University.
45. Roll, R. (1992). "A mean/variance analysis of tracking error." Journal of Portfolio Management, Vol. 18, pp.: 13-22.
2. Bikhchandani, S. and Sharma, S. (2000). "Herd Behavior in Financial Markets." IMF Staff Papers, Vol. 47 (3), pp.: 279-310.
3. Blasco, N. and Ferreruela, S. (2008). "Testing Intentional Herding in Familiar Stocks: An Experiment in an International Context." Journal of Behavioral Finance, Vol. 9 (2), pp.: 72-84.
4. Brussarski, Rumen (2007). "Theory of Public Finance.", Sofia: UNWE.
5. Caparrelli, F., D'Arcangelis, A. M. and Cassuto, A. (2004). "Herding in the Italian Stock Market: A Case of Behavioral Finance." Journal of Behavioral Finance, Vol. 5 (4), pp.: 222-230.
6. Caporale, G., Maria, Economou, F. and Philippas, N. (2008). "Herding behaviour in extreme market conditions: the case of the Athens Stock Exchange." Economics Bulletin, Vol. 7 (17), pp.: 1-13.
7. Chan, K., Covrig, V., and Ng, L. (2005). "What determines the domestic bias and foreign bias? Evidence from mutual fund equity allocations worldwide." Journal of Finance, Vol. 60 (3), pp. :1495-1534.
8. Chang, E. C., Cheng, J. W. and Khorana, A. (2000). "An examination of herd behavior in equity markets: An international perspective." Journal of Banking & Finance, Vol. 24 (10), pp.: 1651-1679.
9. Chaudhuri, S., Chang, A. and Jayaratne, J. (1997). "Informational externalities and the branch location decisions of banks: An empirical analysis." Columbia University and Federal Reserve Bank of New York. Working Paper.
10. Choe, H., Kho, B.-C. and Stulz, R. M. (1999). "Do foreign investors destabilize stock markets? The Korean experience in 1997." Journal of Financial Economics, Vol. 54 (2), pp.: 227-264.
11. Choi, N. and Sias, R. W. (2009). "Institutional industry herding." Journal of Financial Economics, Vol. 94 (3), pp.: 469-491.
12. Christie, W. G. and Huang, R. D. (1995). "Following the Pied Piper: Do Individual Returns Herd around the Market?" Financial Analysts Journal, Vol. 51 (4), pp.: 31-37.
13. Clarke, J. and Subramanian, A. (2006). "Dynamic forecasting behaviour by analysts: Theory and evidence." Journal of Financial Economics, Vol. 80 (1), pp. : 81-113.
14. Demirer, R. and Kutan, A. M. (2006). "Does herding behavior exist in Chinese stock markets?" Journal of International Financial Markets, Institutions and Money, Vol. 16 (2), pp.: 123-142.
15. Demirer, R., Kutan, A. M. and Chen, C.-D. (2010). "Do investors herd in emerging stock markets?: Evidence from the Taiwanese market." Journal of Economic Behavior & Organization, Vol. 76 (2), pp.: 283-295.
16. Devenow, A. and Welch, I. (1996). "Rational herding in financial economics." European Economic Review, Vol. 40 (3-5), pp.: 603-616.
17. Do, V., Guo-Sze Tan, M. and Westerholm, P. J. (2008). "Correlated Trading in Concentrated Market." Journal of International Finance and Economics, Vol. 8 (4).
18. Dorn, D., Huberman, G. and Sengmueller, P. (2008). "Correlated Trading and Returns." The Journal of Finance, Vol. 63 (2), pp.: 885-920.
19. Edison, H. and Warnock, F. (2004). "U.S. Investors' Emerging Market Equity Portfolios: A Security-Level Analysis." Review of Economics and Statistic.
20. Falkenstein, E. (1996). "Preferences for Stock Characteristics as Revealed by Mutual Fund Portfolio Holdings." The Journal of Finance, Vol. 51 (1), pp.: 111-135.
21. Fama, E. (1970). "Efficient Capital Markets: A Review of Theory and Empirical Work." The Journal of Finance, Vol. 25 (2), pp.: 383-417.
22. Feng, L. and Seasholes, M. S. (2004). "Correlated Trading and Location." The Journal of Finance, Vol. 59 (5), pp.: 2117-2144.
23. French, K. and Poterba, J. (1991). "Investor Diversification and International Equity Markets." American Economic Review, Vol. 81, pp.: 222-26.
24. Gervais, S. (1996). "Market microstructure with uncertain information precision: a multiperiod analysis." Wharton School, University of Pennsylvania.
25. Goodfellow, C., Bohl, M. T. and Gebka, B. (2009). "Together we invest? Individual and institutional investors' trading behaviour in Poland." International Review of Financial Analysis, Vol. 18 (4), pp.: 212-221.
26. Graham, J. R. (1999). "Herding among Investment Newsletters: Theory and Evidence." The Journal of Finance, Vol. 54 (1), pp.: 237-268.
27. Griffin, J. M., Harris, J. H., and Topaloglu, S. (2003). "The dynamics of institutional and individual trading." Journal of Finance, Vol. 58 (6), pp.: 2285-2320.
28. Grinblatt, M., Titman, S. and Wermers, R. (1995). "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior." The American Economic Review, Vol. 85 (5), pp.: 1088-1105.
29. Henker, J., Thomas Henker and Mitsios, A. (2006). "Do investors herd intraday in Australian equities?" International Journal of Managerial Finance, Vol. 2 (3), pp.: 196 - 219.
30. Hirshleifer, D. and Teoh, S., Hong (2003). "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis." European Financial Management, Vol. 9 (1), pp.: 25-66.
31. Holmes, P., Kallinterakis, V. and Ferreira, M. P. L. (2011). "Herding in a Concentrated Market: a Question of Intent." European Financial Management, Vol. pp.: no-no.
32. Hong, H. G., Kubik, J. and Solomon, A. (2000). "Security analysts' career concerns and herding of earning forecasts." RAND Journal of Economics, Vol. 31, pp.: 121-144.
33. Hung, W., Lu, C.-C. and Lee, C. F. (2010). "Mutual fund herding its impact on stock returns: Evidence from the Taiwan stock market." Pacific-Basin Finance Journal, Vol. 18 (5), pp.: 477-493.
34. Hwang, S. and Salmon, M. (2004). "Market stress and herding." Journal of Empirical Finance, Vol. 11 (4), pp.: 585-616.
35. Keynes, J.M. (1936). The General Theory of Employment, Interest and Money. London: MacMillan.
36. Kim, Kenneth A. and Nofsinger, John R. (2005). "Institutional Herding, Business Groups, and Economic Regimes: Evidence from Japan." The Journal of Business, Vol. 78 (1), pp.: 213-242.
37. Kim, W. and Wei, S.-J. (2002a). "Foreign portfolio investors before and during a crisis." Journal of International Economics, Vol. 56 (1), pp.: 77-96.
38. Kim, W. and Wei, S.-J. (2002b). "Offshore investment funds: monsters in emerging markets?" Journal of Development Economics, Vol. 68 (1), pp.: 205-224.
39. Lakonishok, J., Shleifer, A. and Vishny, R. W. (1992). "The impact of institutional trading on stock prices." Journal of Financial Economics, Vol. 32 (1), pp.: 23-43.
40. Liao, T.-L., Huang, C.-J. and Wu, C.-Y. (2011). "Do fund managers herd to counter investor sentiment?" Journal of Business Research, Vol. 64 (2), pp.: 207-212.
41. Luetje, T., and Menkhoff, L. (2007). "What Drives Home Bias? Evidence from Fund Managers' Views." International Journal of Finance and Economics, Vol. 12 (1), pp.: 2135.
42. Maug, E., and Naik, N. (1996). "Herding and Delegated Portfolio Management." London Business School, Mimeo.
43. Nofsinger, J. R. and Sias, R. W. (1999). "Herding and Feedback Trading by Institutional and Individual Investors." The Journal of Finance, Vol. 54 (6), pp.: 2263-2295.
44. Radelet, S. and Sachs, J. (1998). "The onset of the East Asian financial crisis." Unpublished Working Paper. Harvard University.
45. Roll, R. (1992). "A mean/variance analysis of tracking error." Journal of Portfolio Management, Vol. 18, pp.: 13-22.
Published
2023-12-22
How to Cite
Yordanov, N. (2023). Institutional Herding in a Transition Economy: Evidence from Bulgaria. Vanguard Scientific Instruments in Management, 19, 176-198. Retrieved from https://www.vsim-journal.info/index.php?journal=vsim&page=article&op=view&path[]=513
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