Investor Herds and Regime-Switching: Evidence from Gulf Arab Stock Markets

40 Pages Posted: 18 Sep 2012

See all articles by Mehmet Balcilar

Mehmet Balcilar

Eastern Mediterranean University

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance; Economic Research Forum (ERF)

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Date Written: September 17, 2012

Abstract

This paper proposes a dynamic herding approach which takes into account herding under different market regimes, with concentration on the Gulf Arab stock markets – Abu Dhabi, Dubai, Kuwait, Qatar and Saudi Arabia. Our results support the presence of three market regimes (low, high and extreme or crash volatility) in those markets with the transition order ‘low, crash and high volatility’, suggesting that these frontier markets have a different structure than developed markets. The results also yield evidence of herding behavior under the crash regime for all of the markets except Qatar which herds under the low and high volatility regimes. The findings of the cross-GCC herding model also demonstrate herding comovements and not spillovers and are also robust to the cross-GCC volatility shocks. The tests that underline the cross volatility shocks generally suggest that the crash regime is a true regime and not a statistical artifact. Policy and portfolio diversification implications are discussed.

Keywords: herding, GCC stock markets, dispersion shocks, Markov-Switching

JEL Classification: C32, G11, G15

Suggested Citation

Balcilar, Mehmet and Demirer, Riza and Hammoudeh, Shawkat M., Investor Herds and Regime-Switching: Evidence from Gulf Arab Stock Markets (September 17, 2012). Available at SSRN: https://ssrn.com/abstract=2147709 or http://dx.doi.org/10.2139/ssrn.2147709

Mehmet Balcilar

Eastern Mediterranean University ( email )

Gazimagusa
Turkey

HOME PAGE: http://www.mbalcilar.net

Riza Demirer

Southern Illinois University Edwardsville - Department of Economics & Finance ( email )

Department of Economics & Finance
Alumni Hall 3144
Edwardsville, IL 62026-1102
United States
(618) 650-2939 (Phone)
(618) 650-3047 (Fax)

HOME PAGE: http://www.siue.edu/~rdemire/

Economic Research Forum (ERF)

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Cairo, Cairo
Egypt

HOME PAGE: http://erf.org.eg/affiliates/riza-demirer-3/

Shawkat M. Hammoudeh (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

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