The Impact of Herding on the Expected Return in the Egyptian Stock Exchange

Mostafa Hussein Abd Alla, Mahmoud Sobh


This paper examines the impact of herding behaviour on the expected return in the Egyptian Stock Exchange by adding an additional risk factor reflecting herding behaviour to the capital asset pricing model. The study used monthly excess stock returns of 50 stocks listed on the Egyptian Stock Exchange from January 2014 to December 2018. The results do not support the capital asset pricing model before and after adding the herding behaviour factor, therefore there is no effect of herding behaviour on the expected return.

Bibliographic citation

Abd Alla, M. H. and Sobh, M. (2019). The Impact of Herding on the Expected Return in the Egyptian Stock Exchange. Financial Assets and Investing, 10(2), pp. 5-20.


CAPM model; herding behaviour

Full Text:


Show references Hide references

Acharya, V. V. and Pedersen, L. H. (2005). Asset Pricing with Liquidity Risk. Journal of Financial Economics, 77(2), pp. 375–410.

Bawa, V. and Lindenberg, E. (1977). Capital Market Equilibrium in a mean, Lower Partial Moment Framework. Journal of Financial Economics, 5(2), pp. 189-200.

Bikhchandani S. and Sharma S. (2001). Herd Behaviour in Financial Markets. IMF Staff Papers, 47(3), Internatinal Monetary Fund.

Black, F. (1972). Capital Market Equilibrium with Restricted Borrowing. The Journal of Business, 45(3), pp. 444-455.

Brock, W. A. (1979). Asset Prices in a Production Economy. Social Science Working Paper 275, California Institute of Technology.

Chang, E. C., Cheng, J. W. and Khorana, A. (2000). An Examination of Herd Behavior in Equity Markets: An International Perspective. Journal of Banking and Finance, 24(10), pp.1651–1679.

Choudhary, K. and Choudary, S. (2010). Testing Capital Asset Pricing Model: Empirical Evidences from India Equity Market. Eurasian Journal of Business and Economics, 3(6), pp. 127-138.

Christie, W. G., Huang, R. D. (1995). Following the Pied Piper: Do Individual Returns Herd Around the Market? Financial Analysts Journal, 51(4), pp. 31–37.

Clare, A. D., Priestley, R. and Thomas, S.H. (1998). Reports of Beta's Death Are Premature: Evidence from the UK. Journal of Banking and Finance, 22, pp. 1207-1229.

Devenow, A. and Welch, I. (1996). Rational Herding in Financial Economics. European Economic Review, 40(3-5), 603-615.

Elkhaldi, A. and Benabdelfatteh, Y. (2014). Testing Herding Effects on Financial Assets Pricing: The Case of the Tunisian Stock Market. British Journal of Economics, Management and Trade, 4(7), pp. 1046-1059.‏

Fama, E. F. and French, K. R. (1993). Common Risk Factors in the Returns on Bonds and Stocks. Journal of Financial Economics, 33, 3–56.

Hogan, W., Warren, J. (1974). Toward the Development of an Equilibrium Capital Market Model Based on Semivariance. Journal of Financial and Quantitative Analysis, 9(1), pp. 1-11.

Hwang, S. and Salmon, M. (2004). Market Stress and Herding. Journal of Empirical Finance, 11(4), pp. 585-616.

Javaira, Z. Hassan, A. (2015). An Examination of Herding Behavior in Pakistani Stock Market. International Journal of Emerging Markets, 10(3), pp. 474-490.

Lee, Y. H., Liao, T. H., and Hsu, C. M. (2015). The Impact of Macroeconomic Factors on the Herding Behaviour of Investors. Asian Economic and Financial Review, 5(2), pp. 295-304.‏

Lintner, J. (1965). The Valuation of Risk Assets and Selection of Risky Investments in Stock Portfolios and Capital Budgets. Review of Economics and Statistics, 47(1) 47, pp. 13-37.

Lucas, R. (1978). Asset Prices in an Exchange Economy. Econometrica, 46(6), pp. 1429-1445.

Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7(1), pp. 77-91.

Mayers, D. (1972). Nonmarketable Assets and Capital Market Equilibrium Under Uncertainty. Studies in the Theory of Capital Markets (edited by Michael C. Jensen), pp. 223-248.

Merton, R. K. (1973). The Sociology of Science: Theoretical and Empirical Investigations. University of Chicago press.‏

Messis, P. and Zapranis, A. (2014). Herding Behaviour and Volatility in the Athens Stock Exchange. The Journal of Risk Finance, 15(5), pp. 572-590.

Metwally, A. H., Eldomiaty, T. and Abdel-Wahab, L. A. (2016). Does Herding Behaviour Vary in Bull and Bear Markets? Perspectives from Egypt. International Journal of Behavioural Accounting and Finance, 6(1), pp. 26-53.‏

Ouarda, M., El Bouri, A. and Bernard, O. (2012). Herding Behavior under Markets Condition: Empirical Evidence on the European Financial Markets. International Journal of Economics and Financial Issues, 3(1), pp. 214-228.‏

Özsu, H. H. (2015). Empirical Analysis of Herd Behavior in Borsa Istanbul. International Journal of Economic Sciences, 4(4), pp. 27-52.

Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory, 13(3), pp. 341-360.

Sharpe, W. F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19(3), pp. 425-442.

Solnik, B. H. (1974). An Equilibrium Model of the International Capital Market. Journal of Economic Theory, 8(4), pp. 500-524.

Strong, N. and Xu, X. G. (1997). Explaining the Cross-section of UK Expected Stock Returns. British Accounting Review, 29(1), pp. 1-23.

Theriou, N. G., Maditinos, D. I., Chadzoglou, P. and Anggelidis, V. (2005). The Cross-section of Expected Stock Returns: An Empirical Study in the Athens Stock Exchange. Managerial Finance, 31(12), pp. 58-78.‏

Vieira, E. F. S. and Pereira, M. S. V. (2015). Herding Behaviour and Sentiment: Evidence in a Small European Market. Revista de Contabilidad, 18(1), pp. 78-86.‏


  • There are currently no refbacks.