Economic policy uncertainty and herding behaviour : evidence from the South African housing market
- Cakan, Esin, Demirer, Riza, Gupta, Rangan, Uwilingiye, Josine
- Authors: Cakan, Esin , Demirer, Riza , Gupta, Rangan , Uwilingiye, Josine
- Date: 2019
- Subjects: Herding , Housing Market , South Africa
- Language: English
- Type: Article
- Identifier: http://hdl.handle.net/10210/399907 , uj:33351 , Citation: Esin Cakan & Riza Demirer & Rangan Gupta & Josine Uwilingiye, 2019. "Economic Policy Uncertainty and Herding Behavior: Evidence from the South African Housing Market," Working Papers 201921, University of Pretoria, Department of Economics.
- Description: Abstract: This paper examines the link between economic policy uncertainty and herding behaviour in financial markets with an application to the South African housing market. Building on the evidence in the literature that herding behaviour driven by human emotions is not only limited to financial markets, but is also present in real estate investments, we examine the presence of herding in this emerging market via static and dynamic herding tests. While the static model fails to detect herding in the South African housing market, a dynamic model based on a two-regime Markov switching specification shows evidence of herding during the high volatility regime only, consistent with the notion that herd behaviour is primarily driven by increased market uncertainty. Extending our analysis via quantile regressions, we further show that higher quantiles of policy uncertainty are associated with greater likelihood of being in the herding regime, thus establishing a link between policy uncertainty and herding behaviour. Overall, our findings suggest that policy uncertainty can serve as a driver of market inefficiencies, which in our case, is associated by the presence of herding.
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- Authors: Cakan, Esin , Demirer, Riza , Gupta, Rangan , Uwilingiye, Josine
- Date: 2019
- Subjects: Herding , Housing Market , South Africa
- Language: English
- Type: Article
- Identifier: http://hdl.handle.net/10210/399907 , uj:33351 , Citation: Esin Cakan & Riza Demirer & Rangan Gupta & Josine Uwilingiye, 2019. "Economic Policy Uncertainty and Herding Behavior: Evidence from the South African Housing Market," Working Papers 201921, University of Pretoria, Department of Economics.
- Description: Abstract: This paper examines the link between economic policy uncertainty and herding behaviour in financial markets with an application to the South African housing market. Building on the evidence in the literature that herding behaviour driven by human emotions is not only limited to financial markets, but is also present in real estate investments, we examine the presence of herding in this emerging market via static and dynamic herding tests. While the static model fails to detect herding in the South African housing market, a dynamic model based on a two-regime Markov switching specification shows evidence of herding during the high volatility regime only, consistent with the notion that herd behaviour is primarily driven by increased market uncertainty. Extending our analysis via quantile regressions, we further show that higher quantiles of policy uncertainty are associated with greater likelihood of being in the herding regime, thus establishing a link between policy uncertainty and herding behaviour. Overall, our findings suggest that policy uncertainty can serve as a driver of market inefficiencies, which in our case, is associated by the presence of herding.
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A note on the technology herd : evidence from large institutional investors
- Uwilingiye, Josine, Cakan, Esin, Demirer, Rıza, Gupta, Rangan
- Authors: Uwilingiye, Josine , Cakan, Esin , Demirer, Rıza , Gupta, Rangan
- Date: 2019
- Subjects: Herding , Institutional investors , Causality
- Language: English
- Type: Article
- Identifier: http://hdl.handle.net/10210/399899 , uj:33350 , Citation: Uwilingiye, Josine & Cakan, Esin & Demirer, Riza & Gupta, Rangan. (2018). A Note on the Technology Herd: Evidence from Large Institutional Investors. Review of Behavioral Finance, forthcoming.. 10.1108/RBF-08-2017-0086.
- Description: Abstract: This paper examines intentional herding among institutional investors with a particular focus on the technology sector that was the driver of the “New Economy” in the United States during the dot-com bubble of the 1990s. Using data on technology stockholdings of 115 large institutional investors, we test the presence of herding by examining linear dependence and feedback between individual investors’ technology stockholdings and that of the aggregate market. Unlike other models to detect herding, we use Geweke (1982) type causality tests that allow us to disentangle spurious herding from intentional herding via tests of bidirectional and instantaneous causality across portfolio positions in technology stocks. After controlling information based (spurious) herding, our tests show that 38 percent of large institutional investors tend to intentionally herd in technology stocks. The findings support the existing literature that investment decisions by large institutional investors are not only driven by fundamental information, but also by cognitive bias that is characterized by intentional herding.
- Full Text:
- Authors: Uwilingiye, Josine , Cakan, Esin , Demirer, Rıza , Gupta, Rangan
- Date: 2019
- Subjects: Herding , Institutional investors , Causality
- Language: English
- Type: Article
- Identifier: http://hdl.handle.net/10210/399899 , uj:33350 , Citation: Uwilingiye, Josine & Cakan, Esin & Demirer, Riza & Gupta, Rangan. (2018). A Note on the Technology Herd: Evidence from Large Institutional Investors. Review of Behavioral Finance, forthcoming.. 10.1108/RBF-08-2017-0086.
- Description: Abstract: This paper examines intentional herding among institutional investors with a particular focus on the technology sector that was the driver of the “New Economy” in the United States during the dot-com bubble of the 1990s. Using data on technology stockholdings of 115 large institutional investors, we test the presence of herding by examining linear dependence and feedback between individual investors’ technology stockholdings and that of the aggregate market. Unlike other models to detect herding, we use Geweke (1982) type causality tests that allow us to disentangle spurious herding from intentional herding via tests of bidirectional and instantaneous causality across portfolio positions in technology stocks. After controlling information based (spurious) herding, our tests show that 38 percent of large institutional investors tend to intentionally herd in technology stocks. The findings support the existing literature that investment decisions by large institutional investors are not only driven by fundamental information, but also by cognitive bias that is characterized by intentional herding.
- Full Text:
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