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Article
Publication date: 11 July 2024

Adel Almasarwah, Khalid Y. Aram and Yaseen S. Alhaj-Yaseen

This study aims to apply machine learning (ML) to identify new financial elements managers might use for earnings management (EM), assessing their impact on the Standard Jones…

248

Abstract

Purpose

This study aims to apply machine learning (ML) to identify new financial elements managers might use for earnings management (EM), assessing their impact on the Standard Jones Model and modified Jones model for EM detection and examining managerial motives for using these components.

Design/methodology/approach

Using eXtreme gradient boosting on 23,310 the US firm-year observations from 2012 to2021, the study pinpoints nine financial variables potentially used for earnings manipulation, not covered by traditional accruals models.

Findings

Cost of goods sold and earnings before interest, taxes, depreciation and amortization are identified as the most significant for EM, with relative importances of 40.2% and 11.5%, respectively.

Research limitations/implications

The study’s scope, limited to a specific data set and timeframe, and the exclusion of some financial variables may impact the findings’ broader applicability.

Practical implications

The results are crucial for researchers, practitioners, regulators and investors, offering strategies for detecting and addressing EM.

Social implications

Insights from the study advocate for greater financial transparency and integrity in businesses.

Originality/value

By incorporating ML in EM detection and spotlighting overlooked financial variables, the research brings fresh perspectives and opens new avenues for further exploration in the field.

Details

Accounting Research Journal, vol. 37 no. 4
Type: Research Article
ISSN: 1030-9616

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Book part
Publication date: 4 April 2024

Kwang-Jing Yii, Zi-Han Soh, Lin-Hui Chia, Khoo Shiang-Lin Jaslyn, Lok-Yew Chong and Zi-Chong Fu

In the stock market, herding behavior occurs when investors mimic the actions of others in their investment decisions. As a result, the market becomes inefficient and speculative…

Abstract

In the stock market, herding behavior occurs when investors mimic the actions of others in their investment decisions. As a result, the market becomes inefficient and speculative bubbles form. This study aims to investigate the relationship between information, overconfidence, market sentiment, experience and national culture, and herding behavior among Malaysian investors. A total of 400 questionnaires are distributed to bank institutions' investors. The survey design based on cross-sectional data is analyzed using the Partial Least Squares Structural Equation Model. The results indicate that information, market sentiment, experience, and national culture are positively related to herding behavior, while overconfidence has no effect. With this, the government should strengthen regulations to prevent the dissemination of misleading information. Moreover, investors are encouraged to overcome narrow thinking by expanding their understanding of different cultures when making investment decisions.

Details

Advances in Pacific Basin Business, Economics and Finance
Type: Book
ISBN: 978-1-83753-865-2

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Publication date: 22 July 2021

Oyerogba Ezekiel Oluwagbemiga

The main objective of this study is to investigate whether adoption of International Financial Reporting Standards (IFRS) improve the quality of financial reporting in Nigeria…

Abstract

The main objective of this study is to investigate whether adoption of International Financial Reporting Standards (IFRS) improve the quality of financial reporting in Nigeria. Financial reporting quality was measured in terms of fundamental qualitative characteristics such as relevance and faithful representation and enhancing qualitative characteristics such as understandability, comparability, verifiability, and timeliness as contained in the conceptual framework. The study was conducted on a sample of 162 companies listed on the Nigerian Stock Exchange. A compound measurement tool in form of an index was developed to comprehensively assess the quality of financial reporting based on information disclosed in the financial statement of the selected companies. From both univariate and multivariate analysis, I found strong evidence suggesting that accounting standard used in the preparation of financial statement have significant influence on the quality of financial report of the reporting entity. The result persists for all the three models (overall financial reporting quality, fundamental, and enhancing qualitative characteristics) tested in this analysis. The result also revealed that apart from firm age and firm growth, most of the firm-specific variables investigated have statistically significant influence on the financial reporting quality.

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Article
Publication date: 24 November 2023

Nidhi Singh

The study assesses impact of individual cultural values on investment choices (aggressive or conservative), of 450 investors with behavioural biases and risk propensity in serial…

280

Abstract

Purpose

The study assesses impact of individual cultural values on investment choices (aggressive or conservative), of 450 investors with behavioural biases and risk propensity in serial as mediators in the relationship.

Design/methodology/approach

The study used serial mediation analysis using Hayes model 6 for creating six models.

Findings

Findings of the study indicated that individualism traits are inclined to aggressive investment choices due to presence of overconfidence biases. Uncertainty avoidance and longtermism traits of investors resulted in aggressive investment choices due to presence of herd mentality bias. The moderating impact of past investing experiences was found significant.

Originality/value

The study indicates the importance of cultural values and past investing experiences of investors that may develop biases to assess investment choices and decisions of investors.

Details

Journal of Advances in Management Research, vol. 21 no. 1
Type: Research Article
ISSN: 0972-7981

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Article
Publication date: 16 June 2023

Yen Vy Bao Nguyen and An Hoang Kim Vo

The priority of this study is to contribute to the literature by examining herding behavior at different periods of the COVID-19 pandemic. Furthermore, this study aims to…

399

Abstract

Purpose

The priority of this study is to contribute to the literature by examining herding behavior at different periods of the COVID-19 pandemic. Furthermore, this study aims to investigate the herding behavior conditioned on market liquidity and information demand.

Design/methodology/approach

This study investigates herding behavior in Vietnam's stock exchanges (Ha Noi Stock Exchange and Ho Chi Minh Stock Exchange) on a sample of daily stock closing prices of 425 firms from 2018 to the first half of 2022.

Findings

The research confirms the existence of herding behavior not only for the whole but also during and post-COVID periods. These results are robust in both bull and bear markets, further confirming the influence of COVID-19 on herding in Vietnamese background. Moreover, when the authors condition exogenous factors for each period, the herding tendency is more evident at the medium market liquidity level than at high and low levels. Besides, the pandemic causes herding behavior of investors with low and medium information demand.

Research limitations/implications

These findings imply some recommendations that facilitate investors, policymakers and researchers in the context of the COVID-19 crisis.

Originality/value

The study contributes to the herding literature by examining herd behavior during the post-COVID period, suggesting the long-term impact of the health crisis. Furthermore, the research provides new evidence of herding behavior conditioned on market liquidity and information demand during different COVID sub-periods.

Details

Journal of Economic Studies, vol. 51 no. 2
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 18 July 2022

Achraf Ghorbel, Yasmine Snene and Wajdi Frikha

The objective of this paper is to investigate the pandemic’s function as a driver of investor herding in international stock markets, given that the current coronavirus disease…

608

Abstract

Purpose

The objective of this paper is to investigate the pandemic’s function as a driver of investor herding in international stock markets, given that the current coronavirus disease 2019 (COVID-19) crisis has caused a large rise in uncertainty.

Design/methodology/approach

The paper investigates the presence of herding behavior among the developed and BRICS (Brazil, Russia, India, China and South Africa) stock market indices during the COVID-19 crisis, by using a modified Cross-Sectional Absolute Deviation (CSAD) measure which is considered a proxy for herding and the wavelet coherence (WC) analysis between CSAD that captures the different inter-linkages between stock markets.

Findings

Using the CSAD model, the authors' findings indicate that the herding behavior of investors is present in stock markets during the four waves of COVID-19 crisis. The results also demonstrate that the transaction volume improve the herding behavior in the stock markets. As for the news concerning the number of cases caused by the pandemic, the results show that the pandemic does not stimulate herding; however, the number of deaths caused by this pandemic turns out to be a great stimulator of herding. By using the WC analysis, the authors' findings indicate the presence of herding behavior between the Chinese and stock markets (developed and emerging), especially during the first wave of the crisis and the presence of herding behavior between the Indian and stock markets (developed and emerging) in the medium and long run, especially during the third wave of the COVID-19 crisis.

Originality/value

The authors' study is among the first that examines the influence of the recent COVID-19 pandemic as a stimulator of herding behavior between stock markets. The study also uses the WC analysis next to the CSAD model to obtain robust results. The authors' results are consistent with the mental bias of behavioral finance where herding behavior is considered effective in volatility predictions and decision-making for international investors, specifically during the COVID-19 crisis.

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Article
Publication date: 25 September 2019

Chamil W. Senarathne

The purpose of this paper is to examine whether Fama–French common risk-factor portfolio investors herd on a daily basis for five developed markets, namely, Europe, Japan, Asia…

2091

Abstract

Purpose

The purpose of this paper is to examine whether Fama–French common risk-factor portfolio investors herd on a daily basis for five developed markets, namely, Europe, Japan, Asia Pacific ex Japan, North America and Globe.

Design/methodology/approach

To examine the herd behavior of common risk-factor portfolio investors, this paper utilizes the cross-sectional absolute deviations (CSAD) methodology, covering a daily data sampling period of July 1990 to January 2019 from Kenneth R. French-Data Library. CSAD driven by fundamental and non-fundamental information is assessed using Fama–French five-factor model.

Findings

The results do not provide evidence for herding under normal market conditions, either when reacting to fundamental information or non-fundamental information, for any region under consideration. However, Fama–French common risk-factor portfolio investors mimic the underlying risk factors in returns related to size and book-to-market value, size and operating profitability, size and investment and size and momentum of the equity stocks in European and Japanese markets during crisis period. Also, no considerable evidence is found for herding (on fundamental information) under crisis and up-market conditions except for Japan. Ancillary findings are discussed under conclusion.

Research limitations/implications

Further research on new risk factors explaining stock return variation may help improve the model performance. The performance can be improved by adding new risk factors that are free from behavioral bias but significant in explaining common stock return variation. Also, it is necessary to revisit the existing common risk factors in order to understand behavioral aspects that may affect cost of capital calculations (e.g. pricing errors) and valuation of investment portfolios.

Originality/value

This is the first paper that examines the herd behavior (fundamental and non-fundamental) of Fama–French common risk-factor investors using five-factor model.

Details

Journal of Capital Markets Studies, vol. 3 no. 2
Type: Research Article
ISSN: 2514-4774

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Article
Publication date: 6 August 2024

Barbara Abou Tanos and Omar Meharzi

The purpose of this study is to investigate how the price delay of cryptocurrencies to market news affects the herding behavior of investors, particularly during turbulent events…

129

Abstract

Purpose

The purpose of this study is to investigate how the price delay of cryptocurrencies to market news affects the herding behavior of investors, particularly during turbulent events such as the COVID-19 period.

Design/methodology/approach

The paper investigates the presence of herding behavior by using Cross-Sectional Absolute Deviation (CSAD) measures. We also investigate the herding activity in the crypto traders’ behavior during up and down-market movements periods and under investor extreme sentiment conditions. The speed of cryptocurrencies’ price response to the information embedded in the market is assessed based on the price delay measure proposed by Hou and Moskowitz (2005).

Findings

Our findings suggest that cryptocurrencies characterized by high price delays exhibit more herding among investors, thereby highlighting higher degrees of market inefficiencies. This is also apparent during periods of extreme investor sentiment. We also document an asymmetric herding behavior across cryptocurrencies that present different levels of price speed adjustments to market news during bullish and bearish market conditions. Our results are consistent and robust across different sub-periods, various market return estimations and different price delay frequencies.

Practical implications

The study provides crucial guidelines for investors’ asset allocation and risk management strategies. This study is also valuable to regulators and policymakers, particularly in light of the increasing importance of financial reforms aimed at mitigating market distortions and enhancing the resilience of the cryptocurrency market. More specifically, regulations that improve the market’s information efficiency should be prioritized to speed up the response time of cryptocurrency prices to market information, which can help reduce the investors' herding behavior.

Originality/value

This paper makes a novel contribution to the academic literature by investigating the unexplored relationship between cryptocurrency price delays and the presence of herding behavior among investors, especially in times of uncertainty such as the COVID-19 pandemic.

Details

Review of Behavioral Finance, vol. 16 no. 6
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 2 March 2022

Imran Yousaf and Jassem Alokla

This study examines herding in Islamic bank equity markets under various market conditions (up/down, high/low trading and high/low volatility) and during events such as…

414

Abstract

Purpose

This study examines herding in Islamic bank equity markets under various market conditions (up/down, high/low trading and high/low volatility) and during events such as Organization of the Petroleum Exporting Countries (OPEC) meeting days, Ramadan, the Gulf Cooperation Council (GCC) crisis of 2017 and the COVID-19 pandemic. The authors also look at the impact of rising and falling oil prices on herding behaviour.

Design/methodology/approach

This study uses the model of Chang et al. (2000) to estimate herding behaviour in the Islamic bank markets.

Findings

First, the authors estimate herding at the GCC region level, and the results reveal an absence of herding under all market conditions and during all the events considered, except for the GCC crisis of 2017. Second, the authors investigate herding in four Gulf countries (Saudi Arabia, United Arab Emirates [UAE], Qatar and Kuwait) separately and find that herding is evident in all these countries during various market conditions. During Ramadan, herding appears in the Saudi Arabia and Kuwait Islamic bank equity markets. Herding is not prevalent during OPEC meeting days in any of the markets, whereas herding is evident in Saudi Arabia, UAE and Kuwait Islamic bank equity markets during the GCC crisis of 2017 and the COVID-19 pandemic. Lastly, the rising and falling oil prices do not influence herding at either GCC region or country level.

Practical implications

From the practitioner's perspective, this study provides useful insights for investors in Islamic banks and policymakers, in terms of asset pricing, portfolio diversification, trading strategies and market stability.

Originality/value

Many studies explore herding in the equity markets of Muslim majority countries, but not specifically in the Islamic bank market. This study fills this literature gap by comprehensively examining herding in Islamic bank equity markets under various market conditions (up/down, high/low trading and high/low volatility) and during events, such as OPEC meeting days, Ramadan, the GCC crisis of 2017 and the COVID-19 pandemic.

Details

Review of Behavioral Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1940-5979

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Article
Publication date: 9 October 2020

Vijay Kumar Shrotryia and Himanshi Kalra

The present study looks into the mimicking behaviour in both normal and asymmetric scenarios. It, then, considers the contagion between the USA and the BRICS stock markets…

290

Abstract

Purpose

The present study looks into the mimicking behaviour in both normal and asymmetric scenarios. It, then, considers the contagion between the USA and the BRICS stock markets. Finally, it examines herd behaviour in the wake of a major banking policy change concerning the bloc under study.

Design/methodology/approach

The current empirical analysis employs daily, weekly and monthly data points to estimate relevant herding parameters. Quantile regression specifications of Chang et al. (2000)'s dispersion method have been applied to detect herd activity. Also, dummy regression specifications have been used to examine the impact of various crises and strategically crucial events on the propensity to herd in the BRICS markets. The time period under consideration ranges from January 2011 until May 2019.

Findings

The relevant herding coefficients turn insignificant in most cases for normal and asymmetric scenarios except for China and South Africa. This can be traced to the anti-herding behaviour of investors, where individuals tend to diverge from the consensus. However, turbulence makes all stock markets to show some collective trading except Russia. Further, the Chinese stock market seems immune to the frictions in the US stock market. Finally, the Indian and South African markets witness significant herding during the formation of a common depository institution.

Practical implications

Most stock markets seem to herd during turbulence. This revelation is of strategic importance to the regulators and capital market managers. They have to be cautious during crises periods as the illusion of being secured with the masses ends up creating unprecedented frictions in the financial markets.

Originality/value

The present study seems to be the very first attempt to test the relevant distributions' tails for convergent behaviour in the BRICS markets.

Details

Review of Behavioral Finance, vol. 14 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

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