A Bayesian model for investor behaviour in the South African equity market

A greater understanding of investor behaviour and investors’ influence on prices can provide valuable insights into market dynamics and potential investment opportunities. In this paper, a Bayesian statistical model is provided for use in evaluating investor behaviour. Specifically, over- and under-reaction on the JSE are investigated. The study used data of 163 shares that were at some point contained in the TOP 100 shares listed in the JSE for the period 2006–2016. These shares had sufficient liquidity and depth of coverage by analysts and investors to be considered fora study on behavioural finance. The financial, industrial, and resources sectors were analysed separately. The two experiments proffered by Barberis et al. were replicated using South African equity market data. The results suggest that, while both over-reaction and under-reaction are detected across the three main financial sectors, the sectors exhibit unique, erratic patterns. This study provides insights into the behaviour of South African’s market participants and clearly illustrates how investor sentiment had varied influence across the three headline sectors at different times.