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Scholar Journal

Journal of Science and Today's World

Journal home page: http://www.journalsci.com

ISSN 2322-326X 2014, volume 3, issue 1, pages: 30-34

Research Article

Evaluating the Herd behavior of investors, industrial companies accepted in Fars Regional Exchange

Reza Tehrani1, Seyed Mojtaba-merlohi2, Omran Hajiarab3*, Shahram Izadi4

1Department of Management, University of Tehran, Kish International Campus, Kish, Iran 2Department of Management, Shahrood University of Technology, Shahrood, Iran 3M.A in financial management, university of Tehran, Kish international campus, Kish, Iran 4Department of Management, Islamic Azad University, Zarghan branch, Zarghan, Iran A R T I C L E I N F O A B S T R A C T Article history: Received 15 December 2013 Accepted 24 January 2014 Published 26 January 2014 Keywords: behavioral finance, herd behavior, Fars Regional Markets *correspondence should be addressed to Omran Hajiarab, M.A in financial management, uni-versity of Tehran, Kish international campus, Kish, Iran, Email: Omranhajiarab@GMAIL.COM

Initial observations in human populations have shown that people who interact with each other and live under a system or systems are generally the same, think and act. When a large group of people with the same judges their fellow, encountered different responses tend to find that they are probably incorrect. These people simply think that all people cannot be wrong, so they changed their minds and they are coordinated. Their herds may exist in more investors and colored imitation being the most basic instincts of humankind is Group. Herd behavior is one of the factors that cause the market to lose its efficiency and prices fail to fully reflect the information, In this study herd behavior among investors in the Fars region stock has been tested in about 89-91 years. In this study examines the decision-making behavior of investors turn to herd and herd behavior in relation with market returns , inflation and stock market varia-bles have been studied. Regional exchange information using monthly returns and monthly returns of each share of the market, survey variables were calculated. Accord-ing to the results, herd behavior in investment, during the investigation there. , And the variables are expressed in standard integration herds. © Copyright 2014 Reza Tehrani et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

1. Introduction

Herd treatment of behavioral biases among investors as an important element in the financial markets is considered. This factor creates some turbulence in situations where it is played. It is a fundamental problem in this context to distinguish between artificial and deliberate variation of herd, because the herd of informed variants may be ineffi-cient and ultimately lead to fluctuations in the market. Herd behavior is one of the factors that cause the market to lose its efficiency and prices fail to fully reflect the information, so the market will be ac-companied by the large fluctuations in like a bubble the price, and cur-rency speculation in arbitrage stock Exchange is formed. Subject of behavioral finance in recent decades as the most important financial question has been of interest to researchers in the fields of finance and economy is growing and more scholars have accepted those investors' expectations of the market is perfectly rational [11, 4] . Initial observa-tions in human populations have shown that people who interact with each other and live under a system or systems are generally the same, think and act. When a large group of people with the same judge their fellow encountered different responses tend to find that they are probably incorrect. These people simply think that all people cannot be wrong, so they changed their minds and they are coordinated. Heir herds may exist in more investors and colored imitation being the most basic instincts of mankind is Group. In financial markets, herd Heir generally known that the behavior of investors, rather than fol-low their own ideas and information to others or emulate the behavior

observed market movements are. There are at least two categories of

people who are up to the subject: the first act of someone new to the market and perform financial asset pricing, the herd heritor and other abnormal conditions to help [18]. Heir popular among people when it comes to be a widespread phenomenon, a social connection there is a strong emotional content. The second category is generally accepted

as the universal heir and herd flooding that may cause the market price fails to reflect the full information and the market is volatile and

the inefficiency to the. An investor to imitate others, you should be

aware of the actions of others and be influenced by them. However, when they have no other investors decide to invest, do not invest in them. Often several reasons an investor seeking to maximize their profits for investment decision planned changes after viewing the be-havior of others. First, he thinks others might know that he does not know what the return on investment and the activities they reveal this information [13, 7, 8].

2. Behavioral Finance Subject of behavioral finance in recent decades as the most important fi-

nancial question has been of interest to researchers in the fields of fi-nance and economy is growing and more scholars have accepted those investors' expectations of the market is perfectly rational. Behavioral finance is a new paradigm in economic theory and in response to the problems that the paradigms of modern finance was not able to ex-press them, emerged. In other words, the analysis focuses on the phe-nomenon when one or two foundational principles of rational behav-ior are flawed, what is happening. Some financial models, individuals are unable to correctly update their beliefs freely. In other models, the choices that is questionable or inconsistent with expected utility prin-ciple. Unlike Markowitz and Sharpe ideas and approaches, behavioral finance and investment issues, issues related to the individuals and the ways in which information is collected and used. Behavioral fi-nance seeks to understand and predict systematic financial market implications of psychological decision process [11, 4, 17, 15].

3. Herd behavior

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Herd behavior is the enormous risks without sufficient information, in other words it clear intention investors to replicate the behavior of other investors defined. In this regard, the formation of herd behavior that herds behavior is interpreted, how the various options of invest-ment decisions by investors to explain. Herd behavior suggests the human tendency to behave like others. In other words, herd behavior; behavior that is a collection of individuals without coordination with each other, their behavior is similar. In the securities market, the in-vestors and managers of investment funds could also be portrayed as a herd without having enough information, doing a similar venture for profit sectors and with the first signs the crisis quickly flock to safe havens. This is mainly due to the lack of appropriate expert analysis, absence or lack of information transparency and investor confidence there by, ultimately, is the capital market inefficiency. If the market is efficient precisely the behavior of the herd is, in fact, incompetent be-havior of the herd market leads. However, even in developed markets, showing the Heir herd behavior can be seen that the paradigm of the efficient market hypothesis in conjunction with other factors is uncer-tain. When examining the behavior of investors in emerging markets should also be considered. herd behavior is more pronounced in emerging markets .these markets are. , people are influenced by their surroundings, especially in times of crisis; people are judged by the community them. Herd behavior when it is clear that investors as a group or population, at the same time, a similar proportion of buy (sell) the underlying data, even if they do not have to be the backbone of their operation. In such circumstances, investors apply additional changes in financial market volatility increases. Because of this it is in-ferred that the decisions and actions to better group decisions is that the group will follow. Herd behavior makes markets lose their effi-ciency and large fluctuations in the prices of securities occur [1, 3, 9, 10].

4. Herd behavior and efficient on market The market is so efficient that: First of all investors without incurring a

fee to have access to current information about the future, and sec-ondly all investors and analysts are mighty welcome, c all investors to closely monitor market prices and Securities are kept suitably adjust-ed .From the perspective of efficient market model assumes that cur-rent prices reflect publicly available information available on them. However, some studies have found results that are expressed or ef-fects of the financial market, there are exceptions that are not con-sistent with the efficient market hypothesis. This means that all rele-vant information, are not reflected in prices or agents (representa-tives) in economic decisions biased (desires) are. Among the excep-tions being the first, most phenomena in financial markets represent a vulnerability to market fluctuations or (Mergers and initial public of-ferings of stock fluctuations in the market can be compared to the po-tential volatility of the underlying issues. Second, it seems to be a gen-eral consensus among market participants and were not based on per-sonal information based on local information is limited. That it repre-sents an independent decision among all market participants illusory and unreal. Third, the most influential market participants acknowledge that markets its decisions is heavily influenced by other market participants. Peach and Zemsky theoretical relationship be-tween the herd market looked inherit and performance. They consider a situation in which the agent (representative) received signal inde-pendent financial net worth. They showed that the herd Heir occurs when the signal representative ignored their decision to buy (sell) based on the last trading puts. According to the definition of herd be-havior herd heir apparent intention investors to follow other investors arises. Such herd-market performance is the result of a false heir. But it should be noted that in practice, the distinction between herd and knowingly false heir at the desk, and even impossible, because many factors have the potential to impact on investment behavior. Heir con-scious herds may be inefficient and often is characterized by fragility and vulnerability of the financial system. It can also lead to high vola-tility and systemic risk in the market. Thus the distinction between the real herd (consciously) and Bogus is very important [2, 6, 12].

5. Research hypotheses

The main hypotheses: The herd behavior of the investment decision on the Stock Exchange

during the period 1389-1391can be seen in the Fars. Sub-hypotheses:

1 - There is a significant relationship between market efficiency and

herd behavior. 2 - Herd behavior and stock market variables Integration exists. 3 - Herd behavior of inflation and macroeconomic variables as special

Integration exists.

6. Research Methodology The present study is based on descriptive - survey. 7. The population and sample size In this study, the study populations are listed companies in the Fars re-

gion is in between 89 to 91 are listed on a stock companies. However, the statistical information collected from the entire population was virtually impossible (even if it is possible both in terms of time, cost and other necessary facilities were not available), a sample was se-lected from the population. The sampling method is to filter the statis-tical community. Based on the sample in this study includes compa-nies that have the following conditions. Companies since the begin-ning the 89 to the end 91 are member of stock Exchange. Financial year end is 29 December. In the course of the fiscal period may not be changed or skipped. Their financial statements in years 88 to 90 have been published by the Exchange. What data are available? Trading halt for more than three months to the end of 88 months from the begin-ning of the year there are 90 of them in stock. Industrial companies are listed; 30 companies have selected.

8. Analysis of data In this study herd behavior among investors in the Tehran Stock Ex-

change, the model was tested by Hwang and Salmon. To calculate the required parameters of the model used and the size of the moving window is considered a window of 24 months. In other words, using data from the past 24 months, monthly returns, monthly returns of each market and the share of the required variables were calculated. After substituting variables obtained by the standard formula variants HS herd values calculated for each month of the year 91-1389 were studied. Accordingly, it is the expression of emotion and herd balance model, CAPM beta Heir How to impress. Under certain conditions, the impact of herd emotions and heir would be the same as it is when the cross-sectional variance of beta Heir herd increases and decreases overall market sentiment. Capital asset pricing model, the expected rate of return on stock sheets as I or P portfolios with risk-appropriate benchmark bonds linking the beta. Relationship CAPM equation is as follows:

Et (rit)=βimt Et(rmt) In this regard: Et (rit): the expected excess return on the share at time t Et (rmt): the expected market excess return at time t βimt: sensitivity factor is systematic risk or in other words the share i at

time t Equation of CAPM, beta is calculated equilibrium conditions as follows:

Et (rmt) Et (rit) / = βimt Having βimt asset i at time t, the price will be. Heir herd bias occurs

when the expected return of an asset Et (rit) is affected by the impact of changes in expected market return over CAPM equilibrium effects would be around 1 βimt may fluctuate. Hwang and Salmon equation with generalized capital asset pricing model, beta Heir herds are de-fined as:

∑(

⁄)

In this regard, we have: Hmt: The behavior of the herd at time t : Standard deviation of the regression equations waste : Standard deviation of monthly returns and market

Various studies have shown that β is not a constant value and is chang-

ing over time. Changes when β can be measured by various methods.

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In this research, an index to measure changes when βimt moving win-dow technique is used for window sizes of 24 months is considered:

itε quantities of waste or errors obtained from the regression equation

for each part is i. Defined by Hwang and Salmon, beta-sectional variance of the herd is

the herd and feelings originate. With respect to the matters stated Sol-omon Hwang and his formula for measuring herd expressed Heir Say

∑

In this regard, H mt: The Heir of herd behavior in the stock market at time t N t: number of shares in the stock market at time t βs imt: Heir herd beta share i at time t Hmt represents the herd behavior. In different time periods for each share is a sβ., If the variance is equal to

zero, ie, H mt beta equal share of the market has changed and every-thing is perfect Heir herd represents the amount of variance H mt heir rise fraction of the herd of.

In this research, an index to measure changes since beta βs imt moving window technique is used. Regression methods are used to estimate the βs imt

Residual values or errors obtained from the regression equation for each share of i is therefore estimate βs imt per share i at time t as fol-lows: bs imt

Here are 2 imt Ϭ covariance rit and rmt rmt variance and variance of 2 mt Ϭ

following is a sample of the waste has been calculated on the basis of regression. According bs imt, Heir herd index measurement criteria are achieved.

∑

Based on the relationship between the estimated βs imt depends to a sig-

nificant bs imt and meaningful change over time and may also affect the computation Hmt. Calculation bs imt well be correct when rit and rmt the same velocity change.

So to avoid these undesirable affects taking Hmt and also reduce the im-

pact of changes in unstable financial markets, especially during the crisis of t statistics in as a measure of herd heritor will be used. In oth-er words, the standard deviation is bs imt.

⁄

In fact, using the t-statistic is distributed with equal variances, this vari-

ance anisotropy in estimating market volatility and the impact disap-pears.

So the t-statistic is calculated as BMI Heir to the Heir of both course and significant differences in body checks.

⁄

⁄)

DF degrees of freedom in this regard., So the index is defined to calculate

the herd Heir

∑(

⁄)

In this regard, we have: H * mt: standard of conduct herd at time t Ϭ ƹit: the standard deviation of the regression equations for the propor-

tion of residue i Ϭ mt: the standard deviation of monthly returns of market 9. Results After calculating the amount of variation in herd, whereas the calculated

value, Hmt is zero, there is no variation of herd behavior and if its value is greater than zero, there is a herd variation in the stock exchange.

Table 1. Heir herd market benchmark values

Table 2. Measure herd changes

The survey results are shown in Table 1months in all the years

1390,1389 and 1391 calculated values Hmt, is non-zero and positive, so the main hypothesis of the study (herd behavior in the investment de-cision in stock Tehran Stock Exchange has seen in years 1389,1390 and 1391 are confirmed. To test the hypothesis that secondary re-search (related to herd behavior and market returns), the Pearson correlation coefficient was used. 008/0- correlation coefficient ob-

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tained a significant correlation between herd behavior and market re-turns do not represent and expresses the herd behavior While there is no alignment with Tehran stock returns . It can be said Heir herd at Tehran Stock Exchange is causing the loss of profit opportunities.

Table 3. Correlation test results

Variation in herd can be formed with old information market and there-fore its parallel efficiency is not necessarily communicating. This is a subject Stationary test and integration accuracy can be studied.

10. Existence of integration among the variables of

herd behavior of the stock market and inflation Herd variation in the behavior of the capital market makers can market

and on the other hand, the main variables of macroeconomic variables such as inflation, political or natural events may depend. In this paper, the researchers also Stationary test series each of the variables in terms of constraints, to pick a testable propositions along Varian be-gan a herd scale, To show that the variation in long-term herd changes proportional changes in underlying market factors, or to generalize this reaction is only something superficial and non-? In seeking this goal, action or interaction between variables is visible in this test was performed. Due to the delay in the decision to transfer the received in-formation to investors, may be delayed effect of changes in economic variables and market variation is observed Existence of long-run equi-librium test vectors for integration reinforces the assumption that de-spite not being observed relation between variables in static tests, all variables converge in the long run may be encountered in motion Among the macroeconomic variables due to poverty research data on the basis of monthly data that is classified only as a variable external swelling can be used Based on data compiled by the Central Bank, the Securities and Exchange Organization We have been continuing. The first step in studying the time series is a measure Stationary. To this end, the unit root tests are done to Stationary be tested at least at a low level. The results for all variables other than herd beta variants showed Stationary. However, the variation in long-term change of herd beta convergence movement efficiency, value and market turno-ver and inflation is under question will be answered in this important integration test. Unit root tests in this study, based on Dickey Fuller statistic added. Granger integration test has been carried out by two different parasites. The results of these tests are listed in the following

tables.

Table 4. On Dickey Fuller unit root test

Tehran stock monthly returns, the inflation rate, the percentage change

in transaction value, the percentage change in the market value of each month study period, without obtaining the difference is Station-ary. Therefore, all the variables are stationary in this area of research.

The economic concept of integration is that when two or more time series based on theoretical concepts are related to at least one long-run equilibrium relationship between them is that in spite of this trend could be random each time series (non stationary) are integra-tion test series. The first part is based on Granger method, this paper analyzes each two lines draw a regular foot exams, and beta is herd variation. , In fact, that it commands a significant convergence be-tween long-run equilibrium relationship like based on herd beta - growth market value , transaction value growth market returns and inflation exists or not. First Test Engel - Granger took Eviews 5 soft-ware. The Johansen test was performed to determine Granger integra-tion method, however, has a different approach. In this method a sim-ple regression between the two variables is estimated. Then Station-ary unit root test for the residuals series regression residuals. Confir-mation of the decision Stationary wastes no difference between the two series can be said to be zero if the degree of accumulation of waste accumulated in the model is zero and the long-term each other's behavior follow.

Table 5. Dickey Fuller unit root test to confirm the accumulation of additional variables

The other party to investigate and identify the long-term equilibrium re-lations Johansson test was used to test for the presence of four vector mentioned variables confirmed the long-term equilibrium. Based on the results despite herd beta Stationary Heir Apparent variable, the variable is aligned with the variable changes and adjustments for in-flation and affects or binding of the market, trading volume and mar-ket value.

Table 6. Integration test - pick a balance

11. Limitations and Suggestions Suggestions for future research • It is recommended that future researchers to influence other variables

are examined in this context. • A proposal to the next step in the understanding of tumor size varia-

tion in the stock market, and identify priority assess causality in emerging markets and even probable changes introduced macroeco-nomic variables.

• Can be used in research across various industries with more samples to be analyzed.

• Political and security variables can also be examined as a mediator or an independent variable.

• Due to the geographical and regional factors can also increase the ef-fective herd behavior Heir is recommended between exchanges in dif-ferent cities or different states of the model tested.

Limitations • Usually all investigations, especially in humanities research, due to lim-

itations of the model, regardless of the number of factors which may influence the presence, the results change. This study is no exception.

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• Another limitation of the study is the sample size. Seems to increase the number of companies surveyed in the study, better results can be obtained.

• It is very difficult to collect the necessary financial information and the accuracy of the information is unclear.

12. Conclusion In this study herd behavior in Fars regional stock investors approved.

More research on the herd behavior of foreign investors has been ap-proved. Thomas et al study the behavior of the global markets have herd. Using daily data for 18 countries from May 25, 1988, to April 24, 2009, evidence of lumps Heir advanced stock markets (excluding the United States) and the Asian markets have demonstrated. Li Zhaoa, Guang Yanga studied the behavior of the herd of information-based trading using daily data concluded the proportion of investors who use fundamental analysis to investors, who use technical analysis, Tend to behave more herd. The survey showed that the more populist trends in stocks of small economies in the current recession. And in-vestors are more likely to conduct herd will sell shares to buy shares when they want. And high-end Wang in a study entitled "herd behav-ior of the market index" cross-beta deviations from the behavior of fi-nancial markets in developed and emerging herd began. They found evidence that the herd was the heir in emerging markets than in de-veloped markets. They also found that the correlation between the two markets similar in both groups than herd Heir herd correlation between the two markets are two different groups of investors. Binjie Luo, Zhangxi Lin, et al, Hirshleifer, D,. Teoh, S, Christie and Huang America stock and Chang and, at the international level, Gleason and his colleagues on commodity futures exchanges in Europe, Gleeson et al , in a stock fund studies on this subject have done. [2], [4], [11], [14], [16].

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