Herding Behaviour by Gambling Preference in the Stock Market: Evidence from Vietnam

Abstract

This is the first study to examine how herding behaviour affects an individual's preference for gambling in the Vietnamese stock market. We test whether stocks that have lottery pay-offs by estimating the mean of the top five daily returns. We also investigate if gambling preferences drive individual investors. Using the Cross-Sectional Absolute Deviation approach, this study examines the herding behaviour in a sample of 1.489.153 daily observations of listed and unlisted enterprises in Vietnam from 2000 to 2021. Our results show that herding behaviour persisted in Vietnam throughout the time of the sample. Empirical findings indicate that the herding tendency in the Vietnamese stock market is motivated by lottery-type stocks. In illiquid equities, the herding tendency by gambling preference is even more evident. Our results are consistent with the anchoring and prospect theories. Policymakers can benefit from this study's practical implications for enhancing market efficiency in emerging economies.