Exchange rate, interest rate and herd behavior in the stock market

Document Type : Original Article

Authors

university of Mazandaran

10.48308/jem.2024.234719.1894

Abstract

The herding behavior in financial markets is perceived as one of the behavioral biases among investors, and investigating the influential factors on it can significantly impact investors' decision-making and efficiency in financial markets. Given the importance of this topic, in this study, herding behavior in the Tehran Stock Exchange is examined using the Cross-Sectional Absolute Dispersion (CSAD) method during the time period from 2005 to 2021. Furthermore, the impact of changes in exchange rates and interest rates on herding behavior in both bullish and bearish market conditions is tested. The research results indicate that in the overall period, an increase in the exchange rate and interest rate lead to herd behavior in the market, while with a decrease in the exchange rate and interest rate, no herd behavior is observed. Similarly, the obtained results in bearish markets are similar to the estimates in the overall period, while this phenomenon is not observed in bullish markets. Therefore, it can be concluded that the effects of increasing exchange rates and interest rates on herding behavior are mainly evident in bearish markets.

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Journal of Economics and Modelling
Volume 14, Issue 3 - Serial Number 55
October 2023
Pages 139-169

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