Journal of Finance and Accounting
ISSN (Print): 2333-8849 ISSN (Online): 2333-8857 Website: http://www.sciepub.com/journal/jfa Editor-in-chief: Apply for this position
Open Access
Journal Browser
Go
Journal of Finance and Accounting. 2019, 7(1), 6-11
DOI: 10.12691/jfa-7-1-2
Open AccessArticle

Impact of Stock Market Liquidity on Herding Behaviour: A Comparative Study of Conglomerate and Consumer Goods Sectors

Ifeoma Patricia Osamor1, , Edwin C. Anene2 and Qudus Ayotunde Saka1

1Department of Accounting, Faculty of Management Sciences, Lagos State University, Lagos State, Nigeria

2Department of Management and Accounting, Faculty of Management Sciences, Ladoke Akintola University of Technology, Oyo State, Nigeria

Pub. Date: May 04, 2019

Cite this paper:
Ifeoma Patricia Osamor, Edwin C. Anene and Qudus Ayotunde Saka. Impact of Stock Market Liquidity on Herding Behaviour: A Comparative Study of Conglomerate and Consumer Goods Sectors. Journal of Finance and Accounting. 2019; 7(1):6-11. doi: 10.12691/jfa-7-1-2

Abstract

Stock market investors are regarded as rational being, but during stock market liquidity, investors tend to exhibit herding behaviour. Several factors affect stock market liquidity, but the liquidity of Conglomerate and Consumer goods sectors may not be obvious. This study examined the impact of stock market liquidity on herding behaviour of investors in Nigerian stock market with focus on Conglomerate and Consumer goods sectors. Monthly data of stock returns and market capitalization for fifteen years from 2001 – 2015 were used and 28 companies' stocks from both sectors were considered. OLS model was used to determine the impact, existence and extent of herding behavior in these sectors. The results showed that stock market liquidity had impact on herding behaviour in both sectors and during high and low market liquidity, there is an evidence of herding behaviour which is not statistically significant in Conglomerate sector compared to Consumer goods sector. The study recommended that NSE should make information available to all market participants in order to boost their confidence in making their own decisions.

Keywords:
herding behavior stock market liquidity Nigerian stock market average monthly returns

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]  Yadav, S. (2017). Stock market volatility: a study of Indian stock market. Global Journal for Research Analysis, 6(4): 629-632.
 
[2]  Ohiomu, S. & Enabulu, G. O. (2011). The effect of stock market on economic growth in Nigeria. Journal of Research in National Development, 9(1): 287-295.
 
[3]  Kahneman, D. & Tversky, A. (1979). Prospect theory: an analysis of decision under risk. Econometrica, 47(2): 263-292.
 
[4]  Ouarda, M., Abdelfatteh, E. B. & Olivero, B. (2013). Herding behaviour under markets condition: Empirical evidence on the European financial markets. International Journal of Economics and Financial Issues, 3(1): 214-228.
 
[5]  Kim, C., Lee W., Choi, Y.H. & Ahn, J.Y. (2013). Analyzing herd behaviour in global stock markets: An intercontinental comparison. Retrieved February 23, 2015 from http://arxiv.org/pdf/1308.3966.pdf.
 
[6]  Ganesh, R. & Naresh, G. (2016). Industry herding behaviour in India stock market. American Journal of Finance and Accounting, 4(3-4): 284-308.
 
[7]  Tran, N. M. & Huy, H. T. (2011). Herding behaviour in an emerging stock market: empirical evidence from Vietnam. Research Journal of Business Management, 5(2): 51-76.
 
[8]  Datar, M. K. (2000). Stock market liquidity: measurement and implications. Fourth Capital Market Conference, India.
 
[9]  Kumar, G. & Misra, A.K. (2015). Closer view at the stock market liquidity: A literature review. Asian Journal of Finance & Accounting, 7(2): 35-57.
 
[10]  Rossi, M. (2018). Efficient market hypothesis and stock market anomalies: empirical evidence in four European countries. The Journal of Applied Business Research, 34(1): 183-192.
 
[11]  Fama, E. F. (1965). The behaviour of stock market prices. Journal of Business, 38(1): 34-105.
 
[12]  Malkiel, B. G. (2009). The price is usually right, a random walk down Wall Street, 19th Edition. Retrieved on February 10, 2015 from http://www.relooney.fatcow.com.
 
[13]  Kofarbai, H. Z. & Zubairu, M. (2016). Efficient Market Hypothesis in Emerging Market: a Conceptual Analysis. European Scientific Journal, 12(25): 260-270.
 
[14]  Ball, R. (1995). The theory of stock market efficiency: Accomplishment and limitations. Journal of Applied Corporate Finance, 8(1): 4-18.
 
[15]  Rossi, M. (2015). The efficient market hypothesis and calendar anomalies: a literature review. Int. J. Managerial and Financial Accounting, 7(3-4): 285-296.
 
[16]  Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2): 383-417.
 
[17]  Sharpe, W. F. (1964). Capital asset prices: a theory of market equilibrium under conditions of risk. Journal of Finance, 19(3): 425-442.
 
[18]  Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The Review of Economics and Statistics, 47(1): 13-37.
 
[19]  Mossin, J. (1966). Equilibrium in a capital asset market. Econometrica, 34(2): 768-783.
 
[20]  Perold, A. F. (2004). The capital asset pricing model. Journal of Economic Perspectives, 18(3): 3-24.
 
[21]  Oseni, E. & Olanrewaju. R.O. (2017). A capital asset pricing model’s (CAPM’s) beta estimation in the presence of normality and non-normality assumptions. International Journal of Finance and Banking Research. 3(3): 44-52.
 
[22]  Rossi, M. (2016). The capital asset pricing model: a critical literature review. Global Business and Economics Review, 18(5): 604-617.
 
[23]  Chang, E.C., Cheng, J.W. & Khorana, A. (2000). An examination of herd behaviour in equity markets: An international perspective. Journal of Banking and Finance, 24(10): 1651-1679.
 
[24]  Chiang, T. C. & Zheng, D. (2010). An empirical analysis of herd behaviour in global stock markets. Journal of Banking & Finance, 34(8): 1911-1921.
 
[25]  Lakonishok, J., Shleifer, A. & Vishny, R.W. (1992). The impact of institutional trading on stock prices. Journal of Financial Economics, 32(1): 23-43.
 
[26]  Walter, A. & Weber, F.M. (2006). Herding in the German mutual fund industry. European Financial Management, 12(3): 375-406.
 
[27]  Christie, W.G. & Huang, R. D. (1995). Following pied piper: do individual returns herd around the market? Financial Analysts Journal, 51(4): 31-37.
 
[28]  Demirer, R. & Kutan, A. (2006). Does herding behaviour exist in Chinese stock markets? Journal of International Financial Markets, Institutions and Money, 16(2): 123-142.
 
[29]  Lakshman, M. V., Basu S. & Vaidyanathan, R. (2011). Market wide herding and the impact of institutional investors in the Indian capital market. Indian Institute of Management, Bangalore Working Paper 327.
 
[30]  Prosad, J., Kapoor, S. & Sengupta, J. (2012). An examination of herd behaviour: an empirical study on Indian equity market. International Conference on Economics and Finance Research, 32: 11-15.
 
[31]  Lao, P. & Singh, H. (2011). Herding behaviour in the Chinese and Indian stock markets. Journal of Asian Economics, 22(6): 495-528.
 
[32]  Ahsan, A. F. M. & Sarkar, A. H. (2013). Herding in Dhaka stock exchange. Journal of Applied Business and Economics, 14(2): 11-19.