Herding behaviour in an emerging market: Evidence from the Moscow Exchange

Abstract

This study investigates the extent to which herding towards the market consensus for Russian stocks is driven by fundamental and non-fundamental factors. We find evidence that investors on the Moscow Exchange herd without any reference to fundamentals during unanticipated financial crises coupled with high uncertainty, in falling markets, and during days with extreme upward oil price movements. The results indicate that companies with less transparent information environment, proxied by company size and the number of analysts following the company, are more prone to herding driven by non-fundamental factors. This herding behaviour temporarily impedes the incorporation of all relevant fundamental information into stock prices and diverts the market from its efficient state. In contrast, in periods of high liquidity and on days of international sanction announcements during the Ukrainian crisis herding behaviour is merely driven by fundamentals. In Russia, macroeconomic news releases induce both information-related herding and herding without any reference to fundamentals. These results suggest that motives of investors herding behaviour vary under specific market conditions and share characteristics.