Investigating Herding Behavior based on the Size and Liquidity of Companies in the Tehran Stock Exchange

Subject Areas : Financial Economics

Yahya Ebrahimpour ¹ , Elham Nobahar ² , Parviz Mohamadzadeh ³

1 - MA in economics, Department of Economic Development and Planning, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran.
2 - Associate Professor, Department of Economic Development and Planning, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran
3 - Professor, Department of Economic Development and Planning, Faculty of Economics and Management, University of Tabriz, Tabriz, Iran

Received: 2024-07-10 Accepted : 2024-11-12 Published : 2025-07-02

Keywords: Herd Behavior, Market Value, Liquidity, Cross-Sectional Absolute Deviation (CSAD), Tehran Stock Exchange.,

Abstract :

One of the factors causing the market price of companies to deviate from their real value is the occurrence of Herd behavior. Herd behavior leads to reduced efficiency in financial markets. Therefore, accurately identifying Herd behavior and examining its various aspects is of significant importance. This study examines Herd behavior in the Tehran Stock Exchange, by considering the size (market value) and liquidity of the companies. To achieve this, we used the method proposed by Chang et al. (2000) to analyze herd behavior in two groups of companies: those with large and small market caps, and those with high and low liquidity, over the period from 2015 to 2023. The analysis was conducted separately using two indices, the market total index and the equal-weighted index, across daily and weekly time frames. The results indicate that in the group of companies with large market caps, there is less herd behavior compared to companies with small market caps. The presence of institutional investors and high trading volumes in companies with large market caps could be factors reducing herd behavior in this group. Additionally, according to the results, there is not much difference in herd behavior between companies with low liquidity and those with high liquidity. Comparing herd behavior using the two indices, the results show that using the total index reveals more herd behavior in companies with large market cap and high liquidity, which could be due to the market total index's greater sensitivity to large companies.

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