Abstract: Herding is said to be present in a market where investors opt to imitate the trading practices of those they consider to be better informed, rather than acting upon their own beliefs and private information. Increase in security return dispersion as a function of the aggregate market return explains herding behaviour in a stock market. The main objective of the study was to determine the effect of herding behaviour on stock market reaction in Kenya. The target population was 67 listed companies at the Nairobi Securities Exchange. A sample of 48 listed companies was used for analysis. Secondary data extracted from his Nairobi Securities Exchange historical data of listed companies for the period 2004 to 2016 was used for analysis. The study adopted quantitative research design. The unit root results showed that all the variable were stationary. Panel data regression was used to analyse data. Unit root tests revealed the dependent and the dependent variable were both stationary at level. Hausman tests revealed that the random effect model revealed that the random effect was more appropriate that the fixed effect model. Panel data regression analysis model was used. Random effect model (EGLS) showed that herding behaviour had a positive statistically significant effect on stock market reaction. In conclusion, the null hypothesis was rejected for herding behaviour has significant effect of on stock market reactions in Kenya. The results revealed that herding behaviour has a positive significant effect on stock market reaction in Kenya.
Keywords: Herding, Stock Market Reaction, Behavioral Finance and Stock Market Efficiency.
Title: Effect of Herding Behavior on Stock Market Reaction in Kenya
Author: Irene Cherono, Tabitha Nasieku, Tobias Olweny
International Journal of Management and Commerce Innovations
ISSN 2348-7585 (Online)
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