Herding behaviour and volatility in the Athens Stock Exchange

Purpose – This study aims to investigate the existence of herding in the Athens Stock Exchange over the 1995-2010 period and examine its effects on market volatility. Design/methodology/approach -Herding is examined over portfolios formed on beta and size of the selected stocks. The detection of herding has been done using the state space model of Hwang and Salmon (2004). Four volatility measures are employed. Findings -The findings depict the presence of herding over two different periods of time. Large differences are observed among the portfolios regarding the herding periods. The results confirm a linear effect of herding on all volatility measures considered. Stocks exhibiting higher levels of herding or adverse herding will also present higher volatility, and from this point of view, herding can be regarded as an additional risk factor. Originality/value -The fact that herding is considered to be an additional risk factor, can lead market participants and investors to a better understanding of market risk, asset pricing and asset allocation.