Herding in Oil-Rich Markets Evidence from Saudi Arabia and the UAE

This paper examines herding behaviour in the Saudi Arabia Stock market in Saudi Arabia (Tadawul), the UAE stock market (The Dubai Stock Market) between January 2001 and December 2023, looking at oil-rich economies susceptible to commodity price fluctuations in addition to investor sentiment. With the help of the State Space model, CSSD and CSAD models, the study validates the existence of herding in both markets, especially in times of market stresses and financial crises. In Saudi Arabia, herding is more prevalent due to the strong retail investor involvement and low foreign investments, whereas, in the UAE, herding is prevelant during financial crisis and shocks. These findings explain the variations in herding intensity because of market structures, regulatory systems, and investor composition. The implications of the findings extend to investors, regulators, and policymakers recommending suitable risk management practices, country specific regulatory response, and a more transparent market. The use of behavioral understanding in forecasting models and policy frameworks can probably enhance stability in the markets and also lead to investor trust in these new financial markets.