gender differential paper IJCRB

ijcrb.webs.com
JUNE 2011
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS VOL 3, NO 2
Our aim is to check in the short-run whether investors within the Tunisian stock market show
a herding behavior. To this end, firstly we compute the cross-sectional absolute standard
deviations of returns and market`s average returns analysing normality and stationarity of
these two series. Secondly, we estimate CSAD regression on market`s average returns and its
squared value.
Insert table 1
It is obvious that CSAD series is not normally distributed. It is leptokurtic since skewness is
positive (superior to zero) and kurtosis is superior to 3. Jarque –Bera statistics confirms the
rejection of the normality hypothesis of the CSAD series. Similarly, market returns series is
leptokurtic (kurtosis superior to 3) with a positive skewness. However, Jarque –Bera statistics
does not reject the normality hypothesis.
Insert table 2
The results reported in table 2 show that all coefficients are significantly different from zero.
The coefficient γ 2
is negative. The relationship between cross-sectional standard deviation
and market returns is linear and decreasing. These results confirm the existence of a herding
behavior and suggest that investors followed average market opinion. It is possible then to
point out that if investors adopt a herding behavior during periods of high fluctuations, the
cross-sectional standard deviation increases less proportionally. Consistent with the work of
de Chang, Cheng and Khorana (2000), individual returns are not compatible the CAPM and
the relationship between cross-sectional absolute standard deviation (E(CSAD)) and market
returns is increasing, yet non-linear.
In order to refine our empirical investigation, we thought it useful to refer to Tan, Chiang and
Nelling (2008) who hold the possibility that the relationship between market return and
CSAD is symmetric.
Inser Table 3
Table 3 indicates that herding behavior exists during a downward market cycle. During the
upward cycle, the coefficient is negative and insignificant, indicating that herding behavior
is absent, i.e. market returns do not reveal any information in favour of herding behavior
during up ward periods. However, during down ward cycles, the coefficient is negative
significantly different from zero which confirms the presence of herding behavior within the
Tunisian stock market.
4. Conclusion
In this paper, we tested the presence of herding behavior in the Tunisian stock market using
two techniques. The first technique, proposed by Chang, Cheng et Khorana (2000), consists
in regressing the cross-sectional absolute standard deviation on market return to check for the
nature of the relationship between these two variables. If this relationship is linear and
increasing, then investors` behavior is consistent with the rationality hypothesis suggested by
CAPM. However, if we note that the deviation of individual returns from market returns is
increasing yet with a decreasing rate, this confirms the presence of herding behavior. if
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