The nexus between herding behavior and spillover: evidence from G7 and BRICS
ISSN: 1940-5979
Article publication date: 19 September 2023
Issue publication date: 5 March 2024
Abstract
Purpose
This study aims at exploring the nexus between herding behavior and the spillover effect in G7 and BRICS stock markets.
Design/methodology/approach
The authors used the dynamic connectedness approach TVP-VAR model of Antonakakis et al. (2019) to capture the spillovers across different markets. Moreover, to explore herding behavior, the authors used a modified version of the CSAD measure of Chang et al. (2000) including extreme market movements. Finally, to study the link between these two phenomena, the authors estimated a DCC-GARCH model.
Findings
The results show that herding behavior exists in the American market and some BRICS markets. Furthermore, spillover between G7 and BRICS increases in times of crisis. Moreover, the authors find a dynamic conditional correlation between herding behavior and spillovers both in the short and long run. The authors conclude that in times of crisis, the transmission of shocks between markets is more frequent, fuelling uncertainty and pushing investors to suppress their own beliefs and follow the general market trends.
Originality/value
This paper uses the TVP-VAR model to explore the spillover effect and the DCC-GARCH model to explore the connectedness between herding behavior and the spillover effect in G7 and BRICS countries in both the short and long run.
Keywords
Citation
Gouta, S. and BenMabrouk, H. (2024), "The nexus between herding behavior and spillover: evidence from G7 and BRICS", Review of Behavioral Finance, Vol. 16 No. 2, pp. 360-377. https://doi.org/10.1108/RBF-01-2023-0016
Publisher
:Emerald Publishing Limited
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