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PurposeThe study attempts to assess the relationship between sociodemographic factors and the risk tolerance level of stock market investors reflected by their trading behavior from the perspective of developing market economy.Design/methodology/approachThe study collected data from a survey on capital market investors in Bangladesh. Portfolio beta has been used as a dependent variable to measure the risk tolerance level where total 11 sociodemographic factors have been used as independent variables.FindingsAmong all study variables, three sociodemographic factors are found to be significant in differentiating the risk tolerance level of the stock market investors. The author finds that the risk tolerance level of stock market investors significantly varies according to marital status, family size and financial responsibility.Practical implicationsAs sociodemographic characteristics provide a basis in assessing the investor risk tolerance level in the context of developing market economies, the study suggests that stock market related policy and investment management planning process should be formulated by incorporating behavioral aspects of the retail investors.Originality/valueThis study has the potential to contribute to the behavioral finance literature by showing how and at what extent sociodemographic factors may influence the risk tolerance level of stock market investors in developing countries, where sociodemographic factors are considered to be more dominating than the normative portfolio selection procedure because of lacking in investors' financial literacy and due to the presence of a weak regulatory as well as institutional framework. Further, apart from identifying and comprehensively incorporating all possible sociodemographic factors, this study uses portfolio beta as a new objective measure for financial risk tolerance, which overcomes the problem of subjective and other risk tolerance measurement in the existing literature.

The European Union introduced Regulation 236/2012 in 2012 to address short selling and certain aspects of credit default swaps (CDS). Consequently, a uniform short position disclosure regime was de...

Since the ECB has lowered the interest rate on deposits into negative territory, more and more commercial banks are also passing on this negative interest rate to their customers. The main aim of this paper is to answer the question under which conditions the commercial banking sector will be more or less reluctant to pass the negative deposit rate on to its private customers. We first clarify the circumstances under which demand deposits and excess liquidity arise, and what role quantitative easing plays in this context. Within a game-theoretical framework, it is derived that the pressure to pass on the negative interest rate is particularly high if there are no switching costs, and the banking market follows a Bertrand competition.

We investigate the influence of social interactions on asset markets and provide an empirical test of the hypothesis that social interactions increase asset pricing bubbles. We test the impact of social interactions on bubbles in a bubble-prone experimental asset-pricing market. Over a total of 21 markets, we compare asset pricing bubbles in a design that allows for social interactions with a standard laboratory setting. Markets that allow for face-to-face communication between participants in a lab-in-the-field setting show significantly larger asset pricing bubbles relative to standard laboratory markets. Face-to-face communication increases bubbles to a larger extend than a popular social media feature, the like.

The period 2000-2013 witnessed a tremendous rise in investor participation in IPOs in Kenya. A number of IPOs have resulted in over-subscription. Outstanding cases include; Kenya-Re (334%), Kengen (236%), Eveready (800%), Safaricom (363%), Mumias Sugar (200%), Access Kenya (300%), Scan Group (520%) and Telkom (300%). The purpose of this study was to empirically investigate factors influencing investor behavior towards IPOs in Kenya. The study had, as its target population people residing in Kenya who have previously participated in any one or more of the following IPOs; Mumias Sugar, Safricom, Kengen, Telkom, Eveready, Kenya- Re, Access Kenya, and Scan Group. Simple Random Sampling was used to select a sample of respondents from the target population. Factor Analysis was used to analyze data collected from the respondents to generate understanding of the main motivation to the hightened interest in IPOs by investors. A number of factors thought to be driving investor’s interests towards initial public offers in Kenya were identified. These factors were conveniently categorized into three in order of significance, general state of the economy, confidant’s opinions, and leading communication from government sources.

PurposeThis study aims to test the presence of herding behavior in commodity markets, including energy, metals and agriculture. Additionally, the authors investigate the possible asymmetric effect of oil price changes on the herding behavior in these markets.Design/methodology/approachThe authors examine herding based on the cross-sectional absolute deviation (CSAD) model in a static and time-varying perspective.FindingsBy using daily data over the period 2003–2017, the authors’ findings firstly support the dynamic nature of investor behavior in commodity markets, which oscillates between antiherding during the normal period and herding during and after the global financial crisis of 2008. Furthermore, results highlight that the asymmetric impact of oil shocks on herding differs across commodity sectors and periods. Additionally, herding seems to be more pronounced when the oil market declines, which may be due to the pessimistic investors' sentiments.Practical implicationsThis study provides insight into what factors influence herd behavior in commodity markets. The understanding of factors driving herding aids investors to avoid the impact of this behavior and its consequencesOriginality/valueTo the authors’ knowledge, this study is the first to examine whether the level of herding depends on the oil price fluctuations, as well as the asymmetric effect of the oil price on herding behavior in commodity markets.

SUMMARY We investigate whether the format of internal control weakness (ICW) disclosures required by the Sarbanes-Oxley Act of 2002 influences perceptions of nonprofessional investors. Using a 2 × 2 between-participants experiment, we examine two facets of ICW disclosure formats: ICW presentation salience (high versus low) and ICW disaggregation type (disaggregated versus aggregated). We hypothesize and find evidence of an interactive effect between presentation salience and disaggregation type, such that investors perceive ICWs as less negative when they are saliently disclosed and this effect is enhanced when the material weakness is disaggregated into its individual control deficiencies. We also find evidence of moderated mediation such that high salience of ICW disclosures has a positive indirect effect on investing judgments through management trust, but only when the ICW is disaggregated into its individual control deficiencies.

Herding is a feature of investor behavior in financial markets, particularly in market stress. We apply an approach based on the cross-sectional dispersion of individual stocks' betas, which allows...

Research shows that many investors are loss averse (reluctant to sell investments that have lost value). However, there is open debate about whether mutual fund investors suffer from loss aversion. We use over 300,000 Chinese mutual fund investor accounts from five open‐end funds to test for loss aversion using survival analysis controlling for time‐varying covariates (Cox analysis). We find strong evidence of loss aversion as these investors are between 60% and 91% less likely to sell a fund that is down in value across the five funds. We also find that more sophisticated investors are less loss averse.

This article examines the question: Does regulatory approval of prospectuses act as a “certification” of securities offerings? Rational investors should generally ignore prospectus approval due to its being uninformative regarding either the quality of, or motives for, the underlying offering. Our survey experiment demonstrates that salient references to regulatory oversight in investment advertisements can lead to significant increases in willingness to invest and concomitant decreases in perceived risks. Conversely, salient disclosure of risk factor information increases risk perceptions and reduces the intention to search for additional information. Various robustness tests confirm that investors can perceive regulatory oversight of securities offerings as an endorsement. Our results provide insight regarding the design of the disclosure and the effective regulation of financial marketing.

The present study investigates market-wide herding of stock market, industry indices of Pakistan, China and USA, A-cross border herding of Pakistan stock market with Chinese stock market and USA stock market. With Cross-Sectional-Absolute-Deviation, to check whether geographical distance matters to influence the stock markets or not and USA is its major influential, cannot be ignored. Market-wide herding in Pakistan is found only during 2004 and 2008 and A-cross border herding for Pakistan is only found from the USA which support asset pricing model and market efficiency. Pakistan market do not herd around China, this negates geographical distance matters, and influence in determining investor behaviour in stock markets. It is revealed, Pakistan stock market does not observe as much herding behaviour in stock investment as other markets (USA and China), so it can be said that Pakistan stock exchange index which is representative of Pakistan Stock market is efficiently operating in contest of Herding.

The concepts of over- and underreaction are frequently used in behavioral financial research to explain investor behavior and resulting market phenomena. This research often makes arbitrary assumptions about which of the two biases is prevalent in a specific situation although psychological research offers more explicit insights. Investors overreact towards information of low weight and underreact if the information has high weight (high reliability). We propose a model that transfers these experimental findings to a financial market setting. Our time-series and cross-sectional empirical analyses support the hypothesis that investors misperceive information weight, which leads to short-term predictability in returns.

Purpose This paper aims to examine the direct and indirect effects of advertising on investor behavior. Design/methodology/approach The authors use a novel and direct measure of investor attention: the number of investors whose watch lists has the stock. Findings The authors find that beyond its direct effect through information dissemination, advertising has an indirect effect with regard to grabbing investor attention and the trading response. The authors further find that an increase in attention induces a positive influence on the impact of advertising on investor behavior. Originality/value First, it complements studies of home bias, in which investors are more likely to buy familiar stocks. Second, it also complements the literature on advertising and investor attention and on attention and capital markets. Third, with a new and unambiguous measure of investor attention. Fourth, combining the direct and indirect aspects, this study presents a detailed description of the financial market effect of advertising.

We show theoretically that the weak transmission of beliefs to actions induces a strong bias in basic asset pricing tests. In particular, expected returns can appear to decline in risk when investors weakly transmit their payoff expectations into willingness to pay. We experimentally test this prediction and find that subjects exhibit an extremely weak transmission of beliefs to actions, which generates a negative risk-return relation. We argue that the weak transmission is due to cognitive noise and demonstrate that cognitive noise causally affects the risk-return relation. Our results highlight the importance of incorporating weak transmission into belief-based asset pricing models.

We propose an experiment to analyze the relationship between volatility regimes and investors’ behavior and explore the mechanism by which aggregated risk aversion is configured. We design a market in which the volatility of the fundamentals is controlled and exogenously manipulated. Then we analyze the participation and trading behavior of participants under different volatility states. We observe a decrease in the market risk aversion during high volatility periods. In these periods, relatively more risk-averse investors do not participate in the risky market while less risk-averse investors trade. The individual risk aversion level of agents does not change during the experiment which leads us to conclude that the changes in market risk aversion during high volatility periods are mainly due to a participation effect.

There are various types of mutual fund distributors in Thailand that utilize technology to provide investment services to individual investors. These services can be accessed through mobile or internet banking, allowing investors to make transactions and invest in mutual funds at their convenience. This work aims to identify the factors that influence individual investors in Thailand to use digital investment services offered by brokerages. We have developed a conceptual model based on the Technology Acceptance Model (TAM2) and relevant literature on fintech and financial behavior, comprising seven variables and six hypotheses. Our research method involves a questionnaire survey of Thai investors and the use of partial least square structural equation modeling (PLS-SEM) for data analysis. The results show that individual investors’ intention to use digital investment services is significantly impacted by their perception of the usefulness of these services. Additionally, this intention is also influenced by other variables such as convenience, trust, and subjective norm, but not by perceived ease of use. This may be because most of our study’s participants are tech-savvy. Our findings provide insight into the perspectives and perceptions of Thai individual investors who have experiences of mutual fund investment.

This research aims to examine the related effects of financial literacy and risk attitudes towards investor behavior in the Indonesian capital market with the motive of saving as a mediating variable. This study uses a quantitative approach and partial least squares- structural equation modelling (PLS-SEM) to test hypotheses. The research data was obtained from 110 questionnaires distributed to capital market investors in Indonesia using the purposive sampling method. The results of this study indicate that financial literacy, risk attitude and saving motives have positive and significant effects on investor behavior in the Indonesian capital market. The influence of financial literacy and risk attitude also has a positive and significant effect on saving motives. However, the motive for saving money cannot mediate the effect of financial literacy and risk attitude on investor behavior. Theoretically, the implications of the results of this study are the level of financial literacy, risk attitude, and saving motives can directly influence investor behavior. The higher the financial literacy, the better the attitude in facing investment risk and the greater the motive for saving, the better the investor's behavior in making investment decisions. Whereas in practical terms, this implication is used as input for investors to further increase financial literacy, pay attention to the level of risk of selected investments, and enlarge the motives for saving so that the purpose of investing can be achieved well.

Significance This paper makes several contributions to research in memory, overconfidence, and investment behavior. First, we find that investors’ memories for past performance are positively biased. They tend to recall returns as better than achieved and are more likely to recall winners than losers. No published paper has shown these effects with investors. Second, we find that these positive memory biases are associated with overconfidence and trading frequency. Third, we validated a new methodology for reducing overconfidence and trading frequency by exposing investors to their past returns., We document a memory-based mechanism associated with investor overconfidence. In Studies 1 and 2, investors were asked to recall their most important trades in the recent past and then reported investing confidence and trading frequency. After the study, they looked up and reported the actual returns of these trades. In both studies, investors were biased to recall returns as higher than achieved, and larger memory biases were associated with greater overconfidence and trading frequency. The design of Study 2 allowed us to separately investigate the effects of two types of memory biases: distortion and selective forgetting. Both types of bias were present and were independently associated with overconfidence and trading frequency. Study 3 was an incentive-compatible experiment in which overconfidence and trading frequency were reduced when participants looked up previous consequential trades compared to when they reported them from memory.

Purpose: This article analyzes the influence of familiarity bias on respondents’ decision-making process, using results from online experiments. Design/methodology/approach: A total of 255 research participants from post-Soviet countries completed 510 online tests that were presented in the form of investment games. In the games, the respondents were allowed to sell, buy, or hold two types of asset portfolios: familiar and unfamiliar assets. Findings: Holders of portfolios with familiar assets were 1.34 times more likely to be persistent in selling winners and holding losers and 1.10 times more likely to be persistent in buying fallen assets than holders of unfamiliar portfolios. Moreover, respondents who managed familiar assets tended to generate terminal result distributions with a kurtosis that was 27.8% higher than the distributions of those managing unfamiliar assets. Originality: Several academic studies have examined familiarity bias, the disposition effect, the positive feedback trading of individual investors, and risk-seeking trading, however, they investigated these topics separately. In the current study, we therefore created an online experiment to identify new aspects of investor behavior.

Η παρούσα διατριβή πραγματοποιεί μια εμπειρική έρευνα για τις αγορές ομολόγων της Ευρώπης, καθώς και των ΗΠΑ και της Ιαπωνίας, με επίκεντρο τις χώρες με δημοσιονομικά προβλήματα. Η πρώτη μελέτη απαντάει στο ερώτημα της αποτελεσματικότητας των αγορών και εξετάζει εμπειρικά κατά πόσον οι επενδυτές σε τίτλους κρατικών ομολόγων αντιδρούν γρήγορα και με ακρίβεια σε πληροφορίες που περιέχονται σε ακραίες αλλαγές αποδόσεων (σοκ). Εάν οι επενδυτές υποαντιδρούν (underreact), τότε ένα θετικό (αρνητικό) σοκ ακολουθείται από μια θετική (αρνητική) απόδοση, και όταν υπάρχει υπερβολική αντίδραση (overreaction), οι επόμενες αποδόσεις είναι προς την αντίθετη κατεύθυνση. Λαμβάνονται ημερήσιες αποδόσεις διετούς, πενταετούς, και δεκαετούς διάρκειας κρατικών ομολόγων (benchmarks) για 14 χώρες, ενώ το δείγμα χωρίζεται σε 2 υπο-περιόδους, (1991-2006 και 2007-2011), προκειμένου να μελετηθεί η σταθερότητα των αποτελεσμάτων στην πάροδο του χρόνου.Είναι ενδιαφέρον να σημειωθεί ότι τα θετικά σοκ (ακραία αύξηση αποδόσεων ομολόγων) είναι περισσότερα σε αριθμό από τα αρνητικά (ακραία μείωση αποδόσεων), ενώ τα μακροπρόθεσμα ομόλογα παρουσιάζουν ασθενέστερη αντίδραση σε σύγκριση με τα βραχυπρόθεσμα και τα μεσοπρόθεσμα χρεόγραφα. Τα αποτελέσματα δείχνουν γενικά μια τάση των επενδυτών να αντιδρούν αποτελεσματικά ή να υποαντιδρούν σε θετικές ακραίες αλλαγές αποδόσεων στις περισσότερες αγορές (ειδικά κατά τη διάρκεια της περιόδου 1999-2007). Αξίζει να σημειωθεί ότι στα βραχυπρόθεσμα ομόλογα, οι επενδυτές υπεραντιδρούν σε αρνητικά σοκ στην Πορτογαλία κατά τη διάρκεια και των δύο υποπεριόδων, καθώς και σε θετικά σοκ στη ίδια χώρα πριν από το 2007.Η δεύτερη μελέτη εξετάζει το πώς ανακοινώσεις αξιολόγησης της πιστοληπτικής ικανότητας επηρεάζουν τις αποδόσεις των ομολόγων, τις αποδόσεις των μετοχών, και τη μεταβλητότητα σε πέντε ευρωπαϊκές αγορές (Ελλάδα, Πορτογαλία, Ιρλανδία, Ιταλία και Ισπανία). Πιο συγκεκριμένα, εξετάζεται κατά πόσον οι αλλαγές στην πιστοληπτική ικανότητα της χώρας μεταφέρουν νέες πληροφορίες στους συμμετέχοντες στην αγορά και αν οι ανακοινώσεις αξιολόγησης σε μια χώρα επηρεάζουν τις αποδόσεις και τη μεταβλητότητα σε άλλες αγορές. Λαμβάνονται ημερήσιες αποδόσεις δεκαετών κρατικών ομολόγων (benchmarks) για την Ελλάδα, την Πορτογαλία, την Ισπανία, την Ιταλία και την Ιρλανδία καθώς και ημερήσιες τιμές των μετοχικών δεικτών του Χ.Α. Composite, PSI-20, IBEX-35, MSCI και ISEQ. Χρησιμοποιούνται ανακοινώσεις αξιολογήσεων από τους Moody’s και Standard and Poors, ενώ το δείγμα διαιρείται στην περίοδο πριν από την κρίση (2001-2008) και την περίοδο της κρίσης (2009-2013). Είναι ενδιαφέρον να σημειωθεί ότι υπάρχουν πολύ λίγες αναβαθμίσεις κατά τη διάρκεια της περιόδου του δείγματος, καθώς οι περισσότερες χώρες διατηρούν σταθερή βαθμολογία μέχρι την κρίση, και οι αλλαγές που λαμβάνουν χώρα είναι κυρίως υποβαθμίσεις κατά τη διάρκεια της πρόσφατης περιόδου.Μοντέλα παλινδρόμησης αποδεικνύουν ότι, κατά την περίοδο της κρίσης, ανακοινώσεις για την πιστοληπτική ικανότητα της Πορτογαλίας και της Ελλαδος έχουν στατιστικά σημαντική επίδραση στις αποδόσεις των ομολόγων και τις αποδόσεις των μετοχών των υπολοίπων χωρών που αντιμετωπίζουν δημοσιονομικές δυσκολίες, μόνο κατά τη διάρκεια της περιόδου πριν και γύρω από τη «διάσωση» της χώρας και την υποβάθμισή της σε «μη επενδυτικό βαθμό». Παρατηρείται ότι δεν υπάρχει καμία σημαντική επίδραση στη μεταβλητότητα των αγορών σε καμία από τις περιόδους. Η τελευταία μελέτη χρησιμοποιεί μια σειρά από μεθόδους για να διερευνήσει τη φύση της μεταβλητότητας και την ύπαρξη επιδράσεων μεταξύ των ομολόγων των οικονομικά προβληματικών χωρών (Ελλάδα, Πορτογαλία, Ιρλανδία) και της μεταβλητότητας σε μεγάλες αγορές ομολόγων και μετοχών (Γερμανία, Ηνωμένο Βασίλειο, Γαλλία, ΗΠΑ, Ιαπωνία) κατά τη διάρκεια της οικονομικής κρίσης της ΕΕ . Μεταξύ άλλων, θα διαπιστώσετε ότι ο βαθμός του “persistence” της μεταβλητότητας είναι σχετικά σταθερός για τις περισσότερες αγορές πριν την κρίση, ωστόσο, αυξάνεται σε πολύ μεγάλο βαθμό για την Ελλάδα κατά τη διάρκεια της κρίσης. Σε αντίθεση με τις αγορές ομολόγων, η φύση της μεταβλητότητας της αγοράς μετοχών δεν έχει μεταβληθεί σημαντικά. Επιπλέον, η χρήση διάφορων μοντέλων (GARCH, DCC-M GARCH) δείχνει ότι, με εξαίρεση τη Γερμανία, η επίδραση των προβληματικών χωρών στη μεταβλητότητα των μεγάλων αγορών ομολόγων κατά τη διάρκεια της κρίσης φαίνεται να έχει υπερεκτιμηθεί. Παρόμοια αποτελέσματα λαμβάνονται όταν παρατηρούμε το δείκτη φόβου VIX στις μεγάλες αγορές καθώς και όταν χρησιμοποιούμε μοντέλα VAR που δείχνουν ότι δεν υπάρχουν στοιχεία μετάδοσης προς τις μεγάλες αγορές ομολόγων κατά την περίοδο της κρίσης.

Purpose- Our health and social lives and financial markets have been significantly influenced by the Covid-19 pandemic. Even though the coronavirus' overall economic impacts are not yet known, a financial market reaction to the pandemic is observed. Studies show that the pandemic has strong impact on stock markets and cryptocurrency markets and also increases uncertainty. Cryptocurrency known as virtual money is one of the most important developments of digitalization. Cryptocurrencies discussed during the past few years and, in particular, a new investor portfolio, are highly popular. Cryptocurrency markets began to pickup with the arrival of bitcoin. These markets have started to be demand like stock markets. The purpose of this study is to establish the elements influencing individual financial investment decisions both on the cryptocurrency market and in the stock markets, with the performance of cryptocurrencies growing positively in conjunction with the pandemic in 2020. Methodology- While making financial decisions, individuals want to know how the market is carried over and they act accordingly. For this reason, both stock and crypto money markets have been examined in order to see the behaviour of individuals. The objective of this research is to establish the elements that influence individual financial investment decisions on both cryptocurrency and equity markets, since cryptocurrencies have a positive increase in performance parallel to the globally lower pandemic interest rates in 2020.In the study, it was collected with the data by survey technique. The survey examined investor behaviour in financial markets based on individual investor demographics on 428 individual investors. Findings- The study, which was collected with the participation of 428 individual investors with the survey technique, shows that the majority of crypto money users are between the ages of 25-34 according to gender, age and education level and are university graduates. When the data of the survey applied to determine the investment tendencies of individual investors are evaluated, it has been observed that the investors are mostly willing to invest in foreign exchange and cryptocurrencies arouse considerable curiosity due to their high return performance. However, participants believed that cryptocurrency market is riskier than stock markets. In our article, the level of perception about how cryptocurrencies are an investment tool is also not clear, and it has been revealed that investors primarily obtain information about this market through social media channels. Conclusion- In the financial sector, where competition is intense, financial decisions taken by investors are of great importance. Increased pandemic risk factor has led to ambiguities in investment decision-making. Global uncertainty continues despite the development of the vaccine. Corruption in cryptocurrency exchange, often mentioned in recent days, led individuals to research and to learn more about themselves in this area, who are investing in this industry or planing to do so. Our survey on investor behaviour in financial markets, which was carried out with the participation of 428 people over the social platform, was also prepared to be more on crypto money. According to the survey, developments regarding cryptocurrencies showed that the State had to regulate. The recent news about corruption reveals that cryptocurrency markets will continue to be precepted negatively for some time, but it shows that incidents are rapidly forgotten. Publisher's Version

Financing a business is a challenge for anyone wanting to earn and grow an enterprise. One of the financial aspects of enterprises are business angels and behavioral finance, which are a related system of development seen through the prism of investor behavior and financial management of enterprises. The aim of the study is to present the importance of business angels in shaping behavioral financing in the enterprise. Business angels are invaluable help in establishing a business entity and its further development. The study is based on a study of the literature on the subject.

Purpose The purpose of this paper is to present the results of a study on investor behavior in exchange-traded fund (ETF) markets. The standard feedback trading model of Sentana and Wadhwani (1992) is used in a sample of 18 ETFs contracts in Brazil, China, South Africa, Korea, Mexico and India, as well as three ETFs contracts in the US market. Design/methodology/approach The sample includes data on daily closing prices and net asset values (NAVs) for three ETFs from each of the emerging markets of Brazil, China, Mexico, Korea and India, as well as on three ETFs from the US market. The authors used the earliest start date available in the Thomson Reuters database pertaining to all of the ETFs, and all series ended on May 5, 2017, and applied the well-established Santana and Wadhwani (1992) seminal model to evaluate evidence of feedback trading in the sample. Findings The empirical analysis suggests that there is evidence of feedback trading in emerging markets such as Brazil, Korea, Mexico and India, while there is no such evidence for the US market. The results are consistent with the view that developed markets investors are prone to pursue fundamental-driven investment strategies, while emerging markets investors appear to have informational guided behavior. Research limitations/implications Emerging markets still make up a very small part of the global ETF market, led by the USA. Nevertheless, it is extremely important that studies of this nature be gradually expanded as these markets grow, in order to verify how emerging markets compare to their developed counterparts in terms of the efficiency of information sharing and rationalization of its operations. Practical implications Emerging markets policy makers could benefit from these findings by stimulating new mechanisms that could minimize informational asymmetry and the persistence of so-called noise traders, a phenomenon observed recently in studies regarding ETF markets (Brown, Davies and Ringgenberg, 2018). Originality/value The behavior of investors was investigated by analyzing a sample of 18 ETFs from the emerging markets of Brazil, China, South Africa, Korea, India and Mexico, as well as three ETFs from the US market. Despite of being investigated separately both emerging (Charteris et al., 2014) and developed markets (Chau et al., 2011), the innovation consists in comparing those markets in a single study, pursuing to explain potential reasons for the differences observed between developed and emerging markets.

Purpose The purpose of this paper is to investigate investor behavior under two broad categories, market-wide sentiment and herding. Design/methodology/approach Using a dynamic factor model, that extracts distinct latent factors representing fluctuations in asset returns due to changes in fundamentals as well as investors’ sentiments, the paper investigates the impact of investor behavior on asset pricing. Findings Consistent with the literature, the results suggest that the behavioral factors play a significant role in explaining variation in the asset prices. However, the degree of influence depends on the nature of the stocks or portfolios. The findings conform to the hypothesis that behavioral factors play a more important role in explaining the price movements of high and medium valued stocks than those of smaller valued stocks. Further, the behavioral factors also exhibit high auto-correlation, depicting the pervasive nature of such factors, and proving that information cascades and other behavioral mechanisms propagate over a period of time leading to bubbles and market crashes. Finally, since herding is often associated with market volatility, the authors test the hypothesis using two measures of volatility and the result shows positive significant associations between them as suggested in the literature. Originality/value The paper presents a dynamic factor model to study the impact of investor behavior on asset returns using a conventional three factors model with behavioral factors. A factor model is proposed to extract distinct latent factors representing fluctuations in asset returns due to changes in fundamentals as well as investors’ sentiments. The study investigates investor behavior under two broad categories, market-wide sentiment and herding. Consistent with the literature, the results suggest that the behavioral factors play a significant role in explaining variation in the asset prices. However, the degree of influence depends on the nature of the stocks or portfolios. The findings conform to the hypothesis that behavioral factors play a more important role in explaining the price movements of high and medium valued stocks than those of smaller valued stocks. Further, the behavioral factors also exhibit high auto-correlation, depicting the pervasive nature of such factors, and proving that information cascades and other behavioral mechanisms propagate over a period of time leading to bubbles and market crashes.

Our paper explores the link between cross-sectional fund return dispersion and performance evaluation. The foundation of our model is the simple intuition that in periods of high return dispersion, which is associated with high levels of idiosyncratic risk for zero-alpha funds, unskilled managers can more easily disguise themselves as skilled. Rational investors should be more skeptical and apply larger discounts to reported performance in high dispersion environments. Our empirical results are consistent with this prediction. Using fund flow data, we show that a one standard deviation increase in cross-sectional return dispersion is associated with an 11% to 17% decline in flow-performance sensitivity. The effect is stronger for recent data and among outperforming funds.