Testing Herding Effects on Financial Assets Pricing: The Case of the Tunisian Stock Market

Abstract

This paper highlights the contribution of behavioral finance to explain market anomalies since the eighteens. Particularly, we use herding behavior approach to elucidate financial asset pricing. Our study is based on Hwang and Salmon methodology [1], in which we use a state space approach based on Kaman’s filter to detect herding behavior in financial market [2]. We use a data of ten listed firms in the Tunisian Stock Exchange Market during the period June 2002 and May 2013. Our results seem to confirm that Tunisian Stock Exchange Market is affected by herding anomaly and that securities return must not deviate significantly from the overall profitability of the market. This can be explained by the fact that in such situation, investors tend to ignore their own information and pass align their investment decisions according to general market tendency.