Market herd mentality in the Philippine equity market

• Main Author: Balungay, Nelmer B.
• Format: text
• Language: English
• Published: Animo Repository 2019
• Subjects: Stock exchanges > Philippines; Kalman filtering; Corporations—Finance; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_masteral/7150
• Institution: De La Salle University

In terms of size effects, this study determined the existence of market herd mentality towards a market performance for ten years. The period began from January 2009 until December 2018 in the Philippine Equity Market. Two (2) portfolios were constructed based on the market capitalization of listed stocks in the Philippines. These are (i) large- capitalization portfolio and (ii) small-capitalization portfolio. Through a state-space approach with a Kalman filter algorithm as modeled by Hwang and Salmon (2004) and by employing cross-sectional standard deviation of Capital Asset Pricing Model’s Beta (Market Model), the results showed that herding towards market performance is present in the large and small-capitalization portfolios. Added to this, the correlation analysis of the quantified latent herding parameters between the two (2) portfolios yielded a low and direct linear relationship. Recommendations have been provided to encourage future research which concerns the herding behavior in the Philippines. Ultimately, a thrilling characteristic of this research is the mathematical quantification of behavior that used stock prices as the primary source of information.