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Examining of herd behavior in the Iranian stock market and to identify the factors influencing its formation: Markov Switching Approach with Time Varying Transition Probabilities
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Hedayat Hoseinzadeh   |
| Assistant Professor of the Economics Department, Payame Noor University, Tehran, Iran , hedhus@pnu.ac.ir |
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Abstract: (27 Views) |
The main objective of this study is to investigate the presence of herding behavior in the Iranian stock market and to identify the factors influencing its formation. For this purpose, daily data from all shares in the market during the period from December 2008 to September 2022 have been used. In this study, a new Markov Switching model with time-varying transition probabilities is employed, which, in addition to examining the nonlinear pattern of herding behavior, allows the researcher to identify the factors affecting transitions between regimes. Initially, the existence of herding behavior is examined using a linear model and then compared with the results of the nonlinear model. The estimation results of both models indicate the presence of herding behavior in the stock market. However, the estimation of the nonlinear model shows that the pattern of herding behavior is not constant over time and continuously changes, with the stock market frequently shifting between two regimes: rational behavior and herding behavior. The estimation results of the nonlinear model also indicate that market capitalization and trading volume variables significantly reduce the probability of herding behavior formation in the stock market. Therefore, deepening the stock market can be utilized by policymakers as a policy tool to counteract the formation of herding behavior.
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Article number: 22 |
| Keywords: Herd Behavior, Tehran Stock Exchange, Markov Switching |
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Full-Text [PDF 1156 kb]
(10 Downloads)
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Article type: Research |
Subject:
Special
Received: 2024/02/16 | Accepted: 2025/06/9 | Published: 2025/10/2
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