Herd behavior and idiosyncratic volatility in a frontier market

Abstract

This study investigates the impact of idiosyncratic volatility on the herd behavior of individual investors in Vietnam stock market covering the period from 2005 to 2016. We employ the herding methods of Christie and Huang (1995) and Chang et al. (2000) and single factor model by Bali and Cakici (2008) to estimate the idiosyncratic volatility. Empirical results indicate that herding exists in this equity market. However, herding behavior displays distinct patterns under different stock portfolios depending on the levels of idiosyncratic volatility. The results are robust under various timeframes including pre-crisis, during crisis and post-crisis. The finding also reveals the existence of herding under particular industry.