Machine Learning vs. Human Investors: Analyzing Adaptive Herding Behaviour in U.S. Stocks vs. Shariah-Compliant Stocks in Malaysia and Indonesia

Ooi Kok Loang; Sevenpri Candra

doi:10.22146/gamaijb.v27i3.16112

Ooi Kok Loang Universiti Malaya
Sevenpri Candra Universitas Bina Nusantara https://orcid.org/0000-0002-3604-4748

DOI: https://doi.org/10.22146/gamaijb.v27i3.16112

Keywords: Machine Learning, Adaptive Herding, Market Sentiment, Financial Stability, Stock Returns

Abstract

This study examined the effectiveness of machine learning models in capturing adaptive herding behaviour in the US, Malaysia, and Indonesia. Utilising data from January 2010 to December 2023, the study incorporates market sentiment (Thomson Reuters MarketPsych Indices), news sentiment (Bloomberg Sentiment Analysis), and investor happiness measures (Hedonometer). The methodology employs both static and adaptive herding analyses using the CSAD approach, enhanced by real-time sentiment analysis and various machine learning models, including single- and multi-layer neural networks. The results indicate significant differences in herding behaviour across the three markets, with machine learning models demonstrating superior performance in capturing herding behaviour and faster normalisation after major macroeconomic events than traditional methods. These findings highlight the potential of machine learning models to challenge the static assumptions of the Efficient Market Hypothesis and provide insights for designing better trading algorithms by considering the impact of market sentiment, news sentiment, and investor happiness.

Author Biographies

Ooi Kok Loang, Universiti Malaya

Ooi, Kok Loang is a Senior Lecturer at the Faculty of Business and Economics, Universiti Malaya. He earned his Doctor of Philosophy (PhD) in Finance in 2022 from Universiti Sains Malaysia (USM), a Master of Arts in Law in 2019 from USM, and subsequently obtained his Master of Laws (LLM) in 2023 from the International Islamic University Malaysia (IIUM).

His research interests include behavioral finance, financial economics, ESG investing, fintech innovation, and capital market development in Asia. He has published in leading academic journals such as Finance Research Letters, International Journal of Islamic and Middle Eastern Finance and Management, Singapore Economic Review, Journal of Applied Economics, and China Finance Review International.

Author’s contact detail: Address: Faculty of Business and Economics, Universiti Malaya 50603, Kuala Lumpur, Malaysia; phone number: - ; Email: markooi@um.edu.my

Sevenpri Candra, Universitas Bina Nusantara

Candra, Sevenpri is a Professor of Management at BINUS Business School, BINUS University. He earned his Doctoral degree in Business Management from BINUS University, Master of Management in General Management from BINUS University, Bachelor’s in Computer Science from BINUS University, Bachelor’s in Economics/ Management from Open University and Professional Engineer from Gadjah Mada University & and ASEAN Federation of Engineering Organisations.

Prior to joining BINUS University, he has more than 7 years professional career in Consulting Business that give a credence as a Manager and IT Consulting as well as his speciality. And these moments, he serves as Deputy Campus Director for Academic & Student Development at BINUS University @Bekasi Campus. He also active as a Reviewer for several prominent journals & conferences and published in leading academic journals. His research interest area is in Digital Business Man- agement.

Author’s contact detail: Address: BINUS Univesity @Bekasi Campus, Summarecon Bekasi, 17142, Kota Bekasi, Jawa Barat, Indonesia; phone number: - ; Email: seven@binus.ac.id

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