Abstract

Purpose – This study examines the relationships between herding behaviour, market overreaction and financial stability in developed and Brazil, Russia, India and China (BRICS) markets from 1 January 2017 to 31 December 2023. It identifies the significant differences in these phenomena across different market types and their implications for financial stability.

Design/methodology/approach – This study employs panel data regression, quantile regression, Granger causality tests and the Baron and Kenny mediation model to analyse the data. These methods are used to explore the extent to which herding behaviour exacerbates market overreaction and affects financial stability.

Findings – The results reveal that herding behaviour exacerbates short-term market overreaction, leading to increased financial instability, particularly in BRICS markets. In contrast, herding behaviour does not significantly impact intermediate-term overreactions in developed markets. The study also finds that market overreaction significantly mediates the relationship between herding behaviour and financial stability.

Practical implications – These findings have practical implications for policymakers. Understanding how herding behaviour and market overreaction impact financial stability can help formulate strategies to enhance market stability and mitigate systemic risks, particularly in more volatile BRICS markets. Social implications– Enhanced financial stability has broad social implications, including improved investor confidence and economic growth. Policymakers can use these insights to create more stable financial environments, which can lead to more robust economic development and reduced vulnerability to financial crises.

Originality/value – This study provides new insights into the differential impact of herding behaviour and market overreaction on financial stability in developed and BRICS markets. By confirming the mediating role of market overreaction, this study enhances our understanding of financial market anomalies and contributes to the literature on financial stability.

A commentary published in Brain Medicine by Drs. Julio Licinio and Ma-Li Wong examines groundbreaking research identifying adenosine signaling as the convergent mechanism underlying rapid-acting antidepressant therapies. The analysis synthesizes the recent Nature study by Yue and colleagues led by Professor Min-Min Luo, which unified the therapeutic effects of ketamine, electroconvulsive therapy, and acute intermittent hypoxia through adenosine surges in mood-regulatory brain circuits. The commentary explores how this metabolic mechanism operates independently of NMDA receptor antagonism, potentially enabling improved derivatives with better therapeutic indices. Most intriguingly, it raises questions about caffeine consumption patterns in treatment-resistant depression, distinguishing between potentially protective effects of chronic coffee drinking and possible interference from acute pre-treatment consumption. This provides a framework for understanding how disparate interventions achieve rapid antidepressant effects.