Vasileios Kallinterakis

Herding in a Concentrated Market: A Question of Intent

While considerable evidence exists that institutions herd, the issue of why herding takes place remains unresolved. Using monthly holdings data for Portugal, we find clear evidence of herding and investigate whether such behaviour is intentional or spurious. By analysing herding under different market conditions, we conclude it is intentional. Month‐of‐the‐quarter analysis suggests reputational reasons drive behaviour. Results are consistent with herding interacting with window dressing to determine funds, buy and sell decisions. The findings are important in understanding market dynamics and fund managers’ behaviour and are of great significance to investors in managed funds.

On the impact of market mergers over herding: evidence from EURONEXT

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 markets merger in an exchange group. Design/methodology/approach - – The hypothesis is tested empirically in EURONEXTs 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 EURONEXTs 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.

Herd Behaviour, Illiquidity and Extreme Market States Evidence from Banja Luka

A large amount of studies have attempted to trace the presence of herding during extreme periods at the cross-sectional level by associating herding with the reduction in the cross-sectional dispersion of returns around the market average. In this article we address the issue of whether the estimation of herding on the premises of such frameworks is robust to the thin trading bias whose presence is particularly prevalent in emerging markets. Our study is undertaken in the context of the Banja Luka Stock Exchange, which is one of the world’s most recently established markets. Results indicate that herding is insignificant during extreme return periods with its insignificance persisting even after controlling for thin trading.

International financial reporting standards and noise trading : evidence from central and eastern European countries.

Purpose - The purpose of this paper is to examine whether the mandatory adoption of International Financial Reporting Standards (IFRS) has produced an impact on the level of noise trading and volatility dynamics in three major central and eastern European (CEE) markets. Design/methodology/approach - The paper employs the theoretical framework proposed by Sentana and Wadhwani to allow the existence of both rational investors and trend-chasing traders in examining the extent to which mandatory IFRS adoption affects the level of noise trading and volatility in the market place. Findings - The results show that noise trading was mostly significant prior to the IFRS introduction, with its significance dissipating following the implementation. Moreover, the paper finds that the level and persistence of stock return volatility has greatly decreased after the implementation of IFRS. Research limitations/implications - These findings are important in understanding the effect of IFRS adoption on the information environment and market dynamics and bear some important implications for the corporate managers, accounting professions and policy makers. For instance, the documented dissipation in noise trading post-IFRS implies that the activity in the sample markets is dominated by rational fundamental investors for whom financial reports constitute part of their decision-making input. Thus, it is crucial that the enforcement of IFRS constitutes a key priority of local authorities as a contributing factor to the efficiency and transparency of the market environment. Practical implications - The finding that moving towards the international accounting standards helps to improve the quality and stability of financial markets should provide a useful reference for many other countries which have recently introduced and/or been considering switching to IFRS as their mandatory accounting standards. Originality/value - This paper provides the first investigation of the effect of accounting standards’ harmonization upon the level of noise trading and volatility of three major transition markets (the Czech Republic, Hungary, and Poland) in the CEE area.

Herding and the Thin Trading Bias in a Start-Up Market: Evidence from Vietnam

Research in behavioural finance has denoted the significant presence of herd behaviour in emerging capital markets. However, although the latter are typified by substantial levels of thin trading, its impact over the measurement of herding has been the subject of very little attention. We address this issue in the context of the Vietnamese market and our results indicate that correcting for thin trading leads to the depression of the herds significance. Our findings are suggestive of thin trading introducing a bias over herding estimations which we interpret through existing literature evidence related to the illiquid structures of emerging markets.

Herding, Nonlinearities and Thin Trading: Evidence from Montenegro

Research in Finance has shown that herd behaviour is associated with nonlinear dynamics in both developed and emerging stock markets. However the latter are characterized by thin trading which has been found to amplify nonlinearities in returns by enhancing their serial dependence. If so, then the association between herding and nonlinearities may be subject to the thin trading bias. As this issue has never explored before, we investigate this in the context of the New Securities Stock Exchange of Montenegro. Results indicate that correcting for thin trading bears a notable impact upon the observed nonlinearities, yet not the estimated herding, which appears insignificant in all tests.

Cross-border exchanges and volatility forecasting

We test for the performance of a series of volatility forecasting models (GARCH 1,1; EGARCH 1,1; CGARCH) in the context of several indices from the two oldest cross-border exchanges (Euronext; OMX). Our findings overall indicate that the EGARCH (1,1) model outperforms the other two, both before and after the outbreak of the global financial crisis. Controlling for the presence of feedback traders, the accuracy of the EGARCH (1,1) model is not affected, something further confirmed for both the pre and post crisis periods. Overall, ARCH effects can be found in the Euronext and OMX indices, with our results further indicating the presence of significant positive feedback trading in several of our tests.

Institutional Herding and Mood

Drawing on a unique data set of daily portfolio holdings for Turkish mutual funds we investigate the relationship between mood and institutional herding on the premises of various established mood proxies (weekend effect; holiday effect; Ramadan; sunshine; new/full moon) for the January 2002 – August 2008 period. Results indicate that fund managers in Turkey herd significantly, with their herding growing in magnitude as the number of active funds per stock rises and appearing stronger on the buythan the sell-side. Although the relationship of mood with institutional herding occasionally assumes the correct sign as per theoretical expectations, institutional herding is found to be insignificantly different across various mood states, thus denoting that mood does not impact the propensity of fund

Exchange-Traded Funds: Do They Promote or Depress Noise Trading?

Abstract Investing in exchange-traded funds (ETFs) is related to specific behavioral biases and heuristics encountered particularly among retail traders. Despite the increasing retail participation in ETFs, the possibility of their introduction boosting noise trading has been largely unexplored. We address this issue drawing on a sample of eight European markets based on a model encompassing rational and noise traders. Our results indicate that the introduction of ETFs has improved the efficiency and dampened any existing noise trading significance at the underlying spot markets, with no evidence suggesting that noise traders migrate from the spot to the ETF market.

On the Impact of Country ETFs' Premiums and Discounts over Feedback Trading

In view of the established presence of wide deviations of US-listed country ETFs’ prices from their net asset values, we study whether feedback trading exists in this category of ETFs and whether it varies with their premiums and discounts. Using a sample of nineteen country ETFs for the 2000-2019 window, we find that feedback trading is present in several of them, particu-larly those targeting Asia Pacific markets. Feedback trading varies with the sign (i.e., premiums and discounts), level, and nature (observed/forecast) of these deviations, as well as prior to and after the outbreak of the 2008 crisis. Of particular note is the widespread feedback trading re-ported across the vast majority of country ETFs on those days for which there exist successful predictions of premiums/discounts, a fact suggesting that country ETFs’ premiums/discounts contain useful information as per their trading dynamics.