Herding Behaviour by Equity Foreign Investors on Emerging Markets
Banco Central do Brasil Working Paper No. 125
28 Pages Posted: 30 Mar 2008
Date Written: 2008
This article analyses empirically the herding behaviour on emerging markets, measuring the degree of herding by foreign investors on emerging equity markets, and evaluating the effects of this behaviour on the volatility and kurtosis of the markets. We use an adaptation of the LSV Herding measure, calculating the measure for a sample of nine emerging markets over the period 2000-2005. Our overall mean, although is lower than previous studies with emerging equity markets during the late 1990s, still indicates the presence of herding behaviour. Regarding the effects of Herding on the risk measures, our results are mixed. We found no effect of the Herding on the volatility. However, we found evidence that fat tails of equity return's distribution may be caused by this herding behaviour of foreigners.
Keywords: Herding, Behaviour, Emerging Markets
JEL Classification: G14, G15
Suggested Citation: Suggested Citation