The Relationship of Aggregate Herd Behavior and Retail Investor Attention: A Multinomial Logistic Regression

Phasin  Wanidwaranan; Chaiyuth  Padungsaksawasdi; Jutamas Wongkantarakorn

Authors

Phasin Wanidwaranan Department of Finance, Faculty of Business Administration for Society, Srinakharinwirot University, Thailand
Chaiyuth Padungsaksawasdi Department of Finance, Thammasat Business School, Thammasat University, Thailand
Jutamas Wongkantarakorn College of Innovation Management, Rajamangala University of Technology Rattanakosin, Thailand

Keywords:

herd behavior, behavioral finance, investor attention, Google search index, Ostrich effect

Abstract

This paper investigates the relationship between aggregate market herding and investor attention in seven selected equity markets over the period of 2004-2019. The multinomial logistic regression employed in this study provides a more direct, comprehensive, and straightforward test than other methodologies found in existing studies, as it demonstrates a true occurrence of herding. Investor attention is positively (negatively) related to (anti-)herd behavior, in which information obtained from internet searches is associated with rational and unintentional herding. Thus, internet search improves stock market efficiency. Nonetheless, the role of investor attention is weaker during negative market returns and global financial crisis periods because investors are less attentive to their psychological discomfort explained by the Ostrich effect. The results call for policymakers to gear to the digital economy.

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