Natividad Blasco

Does herding affect volatility? Implications for the Spanish stock market

According to rational expectation models, uninformed or liquidity trading make market price volatility rise. This paper sets out to analyse the impact of herding, which may be interpreted as one of the components of uninformed trading, on the volatility of the Spanish stock market. Herding is examined at the intraday level, considered the most reliable sampling frequency for detecting this type of investor behavior, and measured using the Patterson and Sharma (Working Paper, University of Michigan–Dearborn, 2006) herding intensity measure. Different volatility measures (historical, realized and implied) are employed. The results confirm that herding has a direct linear impact on volatility for all of the volatility measures considered, although the corresponding intensity is not always the same. In fact, herding variables seem to be useful in volatility forecasting and therefore in decision making when volatility is considered a key factor.

Testing Intentional Herding in Familiar Stocks: An Experiment in an International Context

This paper examines the intentional herd behaviour of market participants within different international markets (Germany, United Kingdom, United States, Mexico, Japan, Spain and France) using a new approach that permits the detection of even moderate herding over the whole range of market return. This approach compares the cross-sectional deviation of returns of each of the selected markets with the cross-sectional deviation of returns of an “artificially created” market free of herding effects. We suggest that intentional herding is likely to be better revealed when we analyse familiar stocks. The results show that only the Spanish market exhibits a significant herding effect.

The Random Walk Hypothesis in the Spanish Stock Market: 1980-1992

In this paper we test the random walk hypothesis in the Spanish stock market using disaggregated daily data base spanning the period January 1980 to December 1992. We find that daily returns are strongly correlated and nonlinear dependent. Furthermore, using the variance-ratio test, that is robust to heteroscedasticity, the results suggest that the rejection of the random walk hypothesis cannot be attributed completely to the effects of time varying volatilities. In this sense, the price changes can be potentially predictable over, at least, short time spans. Copyright Blackwell Publishers Ltd 1997.

Bad news and Dow Jones make the Spanish stocks go round

This paper is a data-based attempt to analyse what kind of information basically affects close-to-open returns, open-to-close returns, volatility and volume in actively traded individual securities on the Spanish stock market. Specifically, we are interested in detecting how these variables react to specific pieces of news considered as exogenous information. However, as volume itself could be interpreted as a proxy of the information flow, we first apply the linear and nonlinear Granger causality tests from volume to return and to volatility. We do not find evidence supporting this latter hypothesis. Furthermore, we only find significant evidence of linear causality from volume to volatility. The other major finding is that both bad news and the Dow Jones play a significant informational role in explaining price changes and volatility. As a consequence of these findings, we also test the residual role of volume as a proxy for noise/liquidity trading after filtering for news, although we do not find evidence in favour of this argument.

Market Sentiment: A Key Factor of Investors’ Imitative Behaviour

The aim of this paper is to explore herding behaviour among investors to determine its rational and emotional component factors and identify relationships among them. We apply causality tests to evaluate the impact of return and market sentiment on herding intensity. The herding intensity is quantified using the measure developed by Patterson and Sharma (2006). The research was conducted during the period 1997–2003 in the Spanish stock market, where the presence of herding has been confirmed. The results reveal that the herding intensity depends on past returns and sentiment or subjective assessments and confirm the presence of both a rational and an emotional factor.

Is bad news cause of asymmetric volatility response? A note

This article uses a direct test of the impact of economic news on stock volatility. The main interest is to test whether the asymmetric response of volatility can be due to the effect of bad news. To do this, this study takes items of news into account as exogenous variables. The analysis is divided into two stages, each of which uses different items of news as exogenous variables additional to the information provided by the residuals. The first stage uses more exhaustively classified information whereas the second considers daily information as a global sign. This study finds that bad news is responsible for most of the observed asymmetric behaviour of variance. Further, this study detects that the GJR model adequately captures the impact of bad news when traders are not ready to carry out a time-consuming analysis of the information.

Testing memory patterns in the Spanish stock market

Different tests are used to study whether the Spanish stock market return time series display memory patterns. The hypothesis that the stock market returns are independently and identically distributed is not corroborated, as it is shown through the Brock-Dechert-Scheinkman (BDS) statistic and the Hurst-Mandelbrot R/S analysis. The alternative of long-range memory as an explanation of the IID departures is explored. The evidence of long-range memory is not convincing using the modified rescaled range (MRR) test and the Geweke-Porter-Hudak (GPH) test, despite the sensitivity of the results to a parameter choice. Nevertheless, the results do suggest the existence of strong memory processes, though such dependence is not exhibited over extremely long time spans.

Detecting Intentional Herding: What Lies Beneath Intraday Data in the Spanish Stock Market

This paper examines the intentional herd behaviour of market participants, using Lis test to compare the probability distributions of the scaled cross-sectional deviation in returns in the intraday market with the cross-sectional deviation in returns in an ‘artificially created’ market free of intentional herding effects. The analysis is carried out for both the overall market and a sample of the most representative stocks. In addition, a bootstrap procedure is applied in order to gain a deeper understanding of the differences across the distributions under study. The results show that the Spanish market exhibits a significant intraday herding effect that is not detected using other traditional herding measures when familiar and heavily traded stocks are analysed. Furthermore, it is suggested that intentional herding is likely to be better revealed using intraday data, and that the use of a lower frequency data may obscure results revealing imitative behaviour in the market.

Information Spillovers between Derivative Markets with Differences in Transaction Costs and Liquidity

In line with the transactions cost theory, this article shows that the futures market with its higher liquidity and lower transactions costs, leads the options market in the price discovery process. Liquidity and transaction costs are also shown to play a key role in market sensitivity to information, since the futures market s response to shocks is quicker, which means that it receives higher volatility spillovers than does the options market.

Does Informed Trading Occur in the Options Market? Some Revealing Clues

This paper analyses the relationship between proxy variables for informed trading in the options market and a set of exogenous news variables. The aim was to test directly for the presence or absence of informed trading in the options market and for the possible impact of this trading on underlying asset prices. Our findings reveal that potential informed trading in options markets is channelled basically through out-of-the-money options, except for volatility trading which mainly involves at-the-money options because of their liquidity. In both cases, we have found evidence in favour of investors’ strategic fragmentation of transactions into intermediate size trades (stealth trading). Finally, it is shown that lack of consensus among agents also generates increased trading, particularly in out-of-the-money and at-the-money options.