Testing Sectoral Herding in the Jordanian Stock Market

Abstract

The main purposes of this quantitative study were to examine the existence of herding behavior among investors in Amman stock exchange (ASE) at market and sector level in addition to testing the behavior during the market rising and falling and examining whether the behavior existence is different before and after the global financial crisis of 2008. The theoretical base of the study was the behavioral finance which assumes that investors are not completely rational and they may follow others when taking investment decisions. The main enquires of the study were about the existence of herding in the Jordanian market, whether it's affected by conditions of market rising and falling, and whether its affected by the financial crisis. A quantitative design was employed to achieve the purposes of this study which covers the period 2000 - 2018. Data were obtained from ASE website and analyzed using ordinary least squares method. The results indicated that herding is absent in the Jordanian market if tested at market level while it exists in services and industrial sectors if tested at sectors level. The financial crisis did not affect the presence of herding at market level while it did affect the behavior in services and industrial sectors. Moreover, the results revealed that market condition of rising and falling affected herding at market level but not at sectors level. It is also concluded that the global financial crisis changed the presence of herding behavior during conditions of rising and falling in market and in each sector.

Keywords: Amman Stock Exchange; Behavioral Finance; Financial Crisis; Herding; Market Falling; Market Rising; Sectoral Herding

JEL Classification: G02