An update about herding behavior during the 2008 and COVID-19 crises

M. Mercè Claramunt Bielsa; Laura González-Vila Puchades; Mohamed Mehdi Hijazi

doi:10.26360/2024_05

Authors

M. Mercè Claramunt Bielsa Universidad de Barcelona (España) https://orcid.org/0000-0002-5184-9106
Laura González-Vila Puchades Universidad de Barcelona (España) https://orcid.org/0000-0003-4824-5894
Mohamed Mehdi Hijazi Universidad de Barcelona (España) https://orcid.org/0000-0001-6426-2809

DOI:

https://doi.org/10.26360/2024_05

Keywords:

herding behavior, 2008 crisis, Covid-19 crisis, volatility, trading volume

Abstract

The purpose of this article is to analyze the effect of the Covid-19 crisis on herding behavior after it ended, comparing it to the 2008 crisis across a large number of countries. Although the existence of herding behavior in financial markets over crisis periods has already been evaluated by some authors, this evaluation has been limited to only a few markets, and many others remain unevaluated. However, this article explores herding behavior during financial crises, focusing on the 2008 global financial crisis and the Covid-19 pandemic, offering a comparative analysis of both events. Using the CSAD of returns method, a sample composed of 31 stock markets and 195.174 observation days (from 02 January 2000 till 05 May 2023) is analyzed. Herding behavior is found during the entire period, during the different periods of crises, during both high and low volatility periods, and during both high and low trading volume periods.

Downloads

Download data is not yet available.

References

Arjoon, V., Bhatnagar, C. S., & Ramlakhan, P. (2020). Herding in the Singapore stock Exchange. Journal of Economics and Business, 109, 105889. https://doi.org/10.1016/j.jeconbus.2019.105889

Babalos, V., Stavroyiannis, S., & Gupta, R. (2015). Do commodity investors herd? Evidence from a time-varying stochastic volatility model. Resources Policy, 46, 281–287. https://doi.org/10.1016/j.resourpol.2015.10.011

Bikhchandani, S., Hirshleifer, D., & Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of Political Economy, 100 (5), 992–1026. https://doi.org/10.1086/261849

Bikhchandani, S., & Sharma, S. (2000). Herd behavior in financial markets. IMF Staff Paper. Retrieved on January 16, 2024. http://www.imf.org/External/Pubs/FT/staffp/2001/01/pdf/bikhchan.pdf

Chang, E., Cheng, J., & Khorona, A. (2000). An examination of Herding behavior in equity markets: an international perspective. Journal of Banking & Finance, 24 (10), 1651-1679. https://doi.org/10.1016/S0378-4266(99)00096-5

Chang, C. L., McAleer, M., & Wang, Y. A. (2020). Herding behaviour in energy stock markets during the Global Financial Crisis, SARS, and ongoing COVID-19. Renewable and Sustainable Energy Reviews, 134, 110349. https://doi.org/10.1016/j.rser.2020.110349

Chen, T. (2021). Does Country Matter to Investor Herding? Evidence from an Intraday Analysis. Journal of Behavioral Finance, 22 (1), 56–64. https://doi.org/10.1080/15427560.2020.1716760

Chiang, T. C., & Zheng, D. (2010). An empirical analysis of herd behavior in global stock markets. Journal of Banking and Finance, 34 (8), 1911 1921. https://doi.org/10.1016/j.jbankfin.2009.12.014

Christie, W. G., & Huang, R. D. (1995). Following the Pied Piper: Do Individual Returns Herd around the Market? Financial Analysts Journal, 51 (4), 31–37. https://doi.org/10.2469/faj.v51.n4.1918

Daniel, K., Hirshleifer, D., & Teoh, S. H. (2002). Investor psychology in capital markets: evidence and policy implications. Journal of Monetary Economics, 49 (1), 139-209. https://doi.org/10.1016/S0304-3932(01)00091-5

Delitala, M., & Lorenzi, T. (2014). A mathematical model for value estimation with public information and herding. Kinetic and Related Models, 7, 29-44. https://doi.org/10.3934/krm.2014.7.29

Demirer, R., Leggio, K. B., & Lien, D. (2019). Herding and flash events: Evidence from the 2010 Flash Crash. Finance Research Letters, 1–4. https://doi.org/10.1016/j.frl.2018.12.018

Dhall, R., & Singh, B. (2020). The COVID-19 Pandemic and Herding Behaviour: Evidence from India’s Stock Market. Millennial Asia, 11 (3), 366-390. https://doi.org/10.1177/0976399620964635

During, B., Juengel, A., & Trussardi, L. (2017). A Kinetic Equation for Economic Value Estimation with Irrationality dnd Herding. Kinetic and Related Models, 10 (1), 239-261. https://doi.org/10.3934/krm.2017010

Economou, F. (2017). Herding in the Athens stock exchange during different crisis periods. In Handbook of Investors’ Behavior during Financial Crises, edited by F. Economou, K. Gavriilidis, G.N. Gregoriou and V. Kallinterakis (Academic Press). https://doi.org/10.1016/B978-0-12-811252-6.00017-7

Economou, F., Gavriilidis, K., & Goyal, A. (2015). Herding dynamics in exchange groups: Evidence from Euronext. Journal of International Financial Markets, Institutions & Money, 34, 228–244. https://doi.org/10.1016/j.intfin.2014.11.013

Enders, C. K. (2010). Applied missing data analysis. Guilford Press.

Espinosa-Méndez, C., & Arias, J. (2021). COVID-19 effect on herding behaviour in European capital markets. Finance Research Letters, 38, 101787. https://doi.org/10.1016/j.frl.2020.101787

Galariotis, E. C., Krokida, S. I., & Spyrou, S. I. (2016). Herd behavior and equity market liquidity: Evidence from major markets. International Review of Financial Analysis, 48, 140–149. https://doi.org/10.1016/j.irfa.2016.09.013

Hair, J. F., Tatham, R. L., Anderson, R. E., & Black, W. C. (2005). Multivariate Data Analysis. Bookman.

Hwang, S., & Salmon, M. (2004). Market Stress and Herding. Journal of Empirical Finance, 11 (4), 585-616. https://doi.org/10.1016/j.jempfin.2004.04.003

Indārs, E. R., Savin, A., & Lublóy, Á. (2019). Herding behaviour in an emerging market: Evidence from the Moscow Exchange. Emerging Markets Review, 38, 468–487. https://doi.org/10.1016/j.ememar.2018.12.002

Jiang, R., Wen, C., Zhang, R., & Gui, Y. (2022). Investor's herding behavior in Asian equity markets during COVID-19 period. Pacific-Basin Finance Journal, 73, 101494. https://doi.org/10.1016/j.pacfin.2022.101771

Jlassi, M., & BenSaïda, A. (2014). Herding Behavior and Trading Volume: Evidence from the American Indexes. International Review of Management & Business Research, 3 (2), 705–722.

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47, 263–292. https://doi.org/10.2307/1914185

Kizys, R., Tzouvanas, P., & Donadelli, M. (2021). From COVID-19 herd immunity to investor herding in international stock markets: The role of government and regulatory restrictions. International Review of Financial Analysis, 74, 101663. https://doi.org/10.1016/j.irfa.2021.101663

Kumar, A., Badhani, K. N., Bouri, E., & Saeed, T. (2020). Herding behavior in the commodity markets of the Asia-Pacific region. Finance Research Letters, 41, 101813. https://doi.org/10.1016/j.frl.2020.101813

Lakonishok, J., Shleifer, A., & Vishny, W. (1992). The impact of institutional trading on stock prices. Journal of Financial Economics, 32 (1), 23–44. https://doi.org/10.1016/0304-405X(92)90023-Q

Lao, P., & Singh, H. (2011). Herding behaviour in the Chinese and Indian stock markets. Journal of Asian Economics, 22 (6), 495–506. https://doi.org/10.1016/j.asieco.2011.08.001

Litimi, H., BenSaïda, A., & Bouraoui, O. (2016). Herding and excessive risk in the American stock market: A sectoral analysis. Research in International Business and Finance, 38, 6–21. https://doi.org/10.1016/j.ribaf.2016.03.008

Luu, Q. T., & Luong, H. T. T. (2020). Herding behavior in emerging and frontier stock markets during pandemic influenza panics. Journal of Asian Finance, Economics and Business, 7 (9), 147–158. https://doi.org/10.13106/jafeb.2020.vol7.no9.147

Maquieira, C., & Espinosa-Méndez, C. (2022). Herding behavior in the Chinese stock market and the impact of COVID-19. Estudios de Economia, 49, 199-229. Retrieved on February 20, 2024. https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/69083

Merli, M., & Roger, T. (2012). What Drives the Herding Behavior of Individual Investors? Finance, 34 (3), 67-104. https://doi.org/10.3917/fina.343.0067

Messaoud, D., & Ben Amar, A. (2024). Herding behaviour and sentiment: evidence from emerging markets. EuroMed Journal of Business. https://doi.org/10.1108/EMJB-08-2023-0209

Metawa, N., Metawa, S., Metawea, M., & El-Gayar, A. (2024). Asymmetry risk and herding behavior: a quantile regression study of the Egyptian mutual funds. Journal of Risk Finance, 25, 366-381. https://doi.org/10.1108/JRF-10-2023-0252

Mobarek, A., Mollah, S., & Keasey, K. (2014). A cross-country analysis of herd behavior in Europe. Journal of International Financial Markets, Institutions and Money, 32, 107–127. https://doi.org/10.1016/j.intfin.2014.05.008

Nguyen, H. M., Bakry, W., & Vuong, T. H. G. (2023). COVID-19 pandemic and herd behavior: Evidence from a frontier market. Journal of Behavioral and Experimental Finance 38. https://doi.org/10.1016/j.jbef.2023.100807

Rubesam, A., & Junior, G. S. R. (2022). Covid-19 and herding in global equity markets. Journal of Behavioral and Experimental Finance, 35. https://doi.org/10.1016/j.jbef.2022.100672

Shah, A. K., & Oppenheimer, D. M. (2008). Heuristics Made Easy: An Effort-Reduction Framework. Psychological Bulletin, 134 (2), 207–222. https://doi.org/10.1037/0033-2909.134.2.207

Sias, W. R. (2004). Institutional Herding. The Review of Financial Studies, 17 (1), 165-206. https://doi.org/10.1093/rfs/hhg035

Tan, L., Chiang, T. C., Mason, J. R., & Nelling, E. (2008). Herding behavior in Chinese stock markets: An examination of A and B shares. Pacific Basin Finance Journal, 16 (1-2), 61–77. https://doi.org/10.1016/j.pacfin.2007.04.004

Toscani, G. (2006) Kinetic models of opinion formation. Communications in Mathematical Sciences, 4 (3), 481-496. https://doi.org/10.4310/CMS.2006.v4.n3.a1

Vega, J. D. L. (1688). Confusion de Confusiones. Amsterdam, Baker Library, Harvard Graduate School of Business Administration, Boston, MA.

World Bank. (2021). Market capitalization of listed domestic companies (current US$). Retrieved on December 15, 2023. https://data.worldbank.org/

Yang, W., & Chuang, M. (2022). Do investors herd in a volatile market? Evidence of dynamic herding in Taiwan, China, and US stock markets. Finance Research Letters, 103364. https://doi.org/10.1016/j.frl.2022.103364

Xing, S., Cheng, T., & Sun, S. (2024). Do investors herd under global crises? A comparative study between Chinese and the United States stock markets. Finance Research Letters, 62. https://doi.org/10.1016/j.frl.2024.105120

Zhang, Y., Zhou, L., Liu, Z., & Wu, B. (2024). Herding behaviour towards high order systematic risks and the contagion Effect—Evidence from BRICS stock markets. The North American Journal of Economics and Finance, 74. https://doi.org/10.1016/j.najef.2024.102219