Systematic Review of the Market Wide Herding Behavior in Asian Region

Abstract

Traditional Finance theory presumed that equity market participants take decisions based on rationality. However, recent market incidents witnessed investor’s decision-making process is fueled with irrational behaviors like herding. Herd behavior is a dominated behavioral bias which depict investors take decisions based on imitating other investors’ behavior. Numerous studies can be identified in Herding based literacy in developed, emerging and frontier markets around the world. Thus, this study attempts to provide a review of theory and empirical evidence on market wide herding behavior in Asian region. As per the findings of the study, it can be observed that in India majority of studies have confirmed the non-existence of herding behavior. Half of the studies conducted in Pakistan confirm the existence of herding behavior while remainder confirm non-existence of herding behavior. Similar results were observed in Sri Lanka as well. However, majority of studies in Taiwan and Indonesia and all the studies of Vietnam have provided results for the existence of herding behavior. Thereby this study identifies several open issues for future research. Future studies that deal with time-series price data could employ empirical methodologies that allow for time-variation in parameter values. It is also important to know whether it is the same investors that herd over time, and why: are the reasons behind herding the same over time? Further qualitative research needs to be conducted to identify the reasons behind the investor herding behavior.