Do investors herd extreme periods in thin markets? Evidence from Banja Luka

Abstract

A large amount of studies has attempted to trace the presence of herding during extreme periods at the cross-sectional level by associating herding with the reduction in the cross-sectional dispersion of returns around the market average. In this paper we address the issue of whether the estimation of herding on the premises of such frameworks is robust to the thin trading bias whose presence is particularly prevalent in emerging markets. Our study is undertaken in the context of the Banja Luka stock exchange which is one of the world’s most recently established markets. Results indicate that herding is insignificant during extreme return periods with its insignificance persisting even after controlling for thin trading