Herding Behaviour by Equity Foreign Investors on Emerging Markets

Banco Central do Brasil Working Paper No. 125

28 Pages Posted: 30 Mar 2008

See all articles by Jose Renato Haas Ornelas

Jose Renato Haas Ornelas

Banco Central do Brasil

Barbara Alemanni

affiliation not provided to SSRN

Date Written: 2008

Abstract

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

Ornelas, Jose Renato Haas and Alemanni, Barbara, Herding Behaviour by Equity Foreign Investors on Emerging Markets (2008). Available at SSRN: https://ssrn.com/abstract=1114608 or http://dx.doi.org/10.2139/ssrn.1114608

Jose Renato Haas Ornelas (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distrito Federal 70074-900
Brazil

HOME PAGE: http://www.bcb.gov.br

Barbara Alemanni

affiliation not provided to SSRN ( email )

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