Herd Behavior in Shariah Compliant Stocks: Evidence from Islamic Countries

Abstract

This article investigates the presence of herd occurrence in Shariah-compliant stocks across 10 Islamic countries. To measure herd behavior, the Cross-Sectional Absolute Deviation (CSAD) technique has been applied to five years of daily stock price data from these countries. The analysis of daily stock prices for Saudi Arabia, Kuwait, Oman, Qatar, Bahrain, Bangladesh, Pakistan, Indonesia, Malaysia, and the UAE suggests a significant incidence of herd behavior among investors in these markets. The study is confined to assessing Islamic stockholders who invest in equity markets and are influenced by herd behavior, with the methodology offering potential applications to other Asian countries, as well as economies in Europe, the USA, and other regions. As research on behavioral sciences is still in its early stages, this paper represents a step forward in understanding behavioral biases through the lens of CSAD. Notably, there is a scarcity of research on behavioral finance in major Islamic countries across Asia, and this study aims to reduce that gap by analyzing the behavioral factors influencing investment decisions in these markets.