On the Impact of Market Mergers Over Herding: Evidence from Euronext

Review of Behavioral Finance, Vol. 6, Issue 2, pp. 104-135

Posted: 5 Nov 2014

See all articles by Panagiotis Andrikopoulos

Panagiotis Andrikopoulos

Centre for Financial and Corporate Integrity (CFCI), Coventry University

Andreas Höfer

University of Bamberg

Vasileios Kallinterakis

Durham Business School

Date Written: November 3, 2014

Abstract

Purpose – The purpose of this paper is to present and empirically test for the first time the hypothesis that herding in a market increases following the market’s merger in an exchange group.

Design/methodology/approach – The hypothesis is tested empirically in EURONEXT’s four European equity markets (Belgium, France, the Netherlands and Portugal) on the premise of the Hwang and Salmon (2004) measure which allows us insight into the significance, structure and evolution of market herding. Tests are conducted for each market for the period prior to and after its merger into EURONEXT, controlling for a series of variables (market conditions, common risk factors, size) to gauge the robustness of the findings.

Findings – Results indicate that, with the exception of Portugal, herding grows in significance, yet declines in momentum post-merger. The authors ascribe the findings to EURONEXT’s enhanced transparency (which makes it easier for investors to observe their peers’ trades, thus allowing them to infer and free-ride on their information) and its fast-moving informational dynamics that render herding movements shorter-lived. These results are robust when controlling for various market states and common risk factors, with deviations being observed when controlling for size and market volatility.

Originality/value – The study presents results for the first time on the impact of exchange mergers on herd behavior. The authors believe these to constitute useful stimulus for further research on the issue and bear important implications for regulators/policymakers in view of the ongoing proliferation of exchange mergers that has been underway since the 1990s.

Keywords: Herding, Behavioural finance, EURONEXT, Exchange mergers

JEL Classification: G10, G14, G20

Suggested Citation

Andrikopoulos, Panagiotis and Höfer, Andreas and Kallinterakis, Vasileios, On the Impact of Market Mergers Over Herding: Evidence from Euronext (November 3, 2014). Review of Behavioral Finance, Vol. 6, Issue 2, pp. 104-135. Available at SSRN: https://ssrn.com/abstract=2518649

Panagiotis Andrikopoulos (Contact Author)

Centre for Financial and Corporate Integrity (CFCI), Coventry University ( email )

Priory Street
Coventry, CV1 5FB
United Kingdom
+44(0)247 765 7920 (Phone)

Andreas Höfer

University of Bamberg ( email )

Kirschaeckerstrasse 39
Bamberg, 96045
Germany

Vasileios Kallinterakis

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

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