COVID-19 Pandemic and Investor Herding in International Stock Markets

Bouri, Elie; Demirer, Rıza; Gupta, Rangan; Nel, Jacobus

doi:10.3390/risks9090168

Cited by 88 publications

(83 citation statements)

References 48 publications

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“…Espinosa-Méndeza and Arias (2021) provide robust evidence on the presence of herding behaviour in five European capital markets following the COVID-19 outbreak. Bouri et al (2021) find a strong association between herd formation in stock markets and COVID-19induced market uncertainty and this association is particularly relevant for emerging stock markets. In this context, Dhall and Singh (2020) point out that COVID-19 pandemic caused the formation of herding behaviour at the industry level in an emerging market, namely, the Indian stock market.…”

Section: Introductionmentioning

confidence: 77%

The COVID-19 pandemic and herding behaviour among investors in Shariah-compliant stocks

Bougatef

Nejah

2022

JIABR

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Purpose This paper aims to investigate whether the COVID-19 pandemic leads to the formation of herding behaviour among investors in Shariah-compliant stocks. Design/methodology/approach This study uses a sample of the stocks that constitute the Dow Jones Islamic Market Malaysia Titans 25 Index, over the period from 6 December 2017 to 12 March 2021. Findings This paper provides robust evidence on the contribution of the COVID-19 pandemic to the formation of herding behaviour in Shariah-compliant stocks. The findings also reveal that herding behaviour occurs only during falling market. Research limitations/implications The findings provide useful implications for policymakers and portfolio managers seeking to understand the behaviour of investors in Shariah-compliant stocks during turbulent periods. The presence of herding behaviour begs the question on the market efficiency and limits its potential to offer diversification benefits to investors. The findings suggest that policymakers and investors should mitigate misvaluations that occurred during the COVID-19 outbreak because the herding behaviour can drive stock prices away from their equilibrium values. Thus, regulators should adopt appropriate policies to enable the market to reach a more efficient level by monitoring and improving the quality of information and facilitate their transmission to the market. The misevaluation opportunity enables market timers to sell overpriced stocks and purchase underpriced stocks. The findings also imply that investors should implement effective hedging strategies to mitigate the downside risk. In addition, the results suggest that investors should devise their trading strategies in falling and rising markets during the COVID-19 pandemic. Originality/value There is meagre literature on the effect of the COVID-19 outbreak on the formation of herding behaviour among investors. Studies conducted on herd behaviour are widely focused on Shariah non-compliant stocks, only a few ones deal with Shariah-compliant stocks. The novelty of this paper consists in addressing this gap in the literature through examining the presence of herding behaviour on the part of investors in Shariah-compliant stocks in Malaysia before and after the COVID-19 outbreak.

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Section: Introductionmentioning

confidence: 77%

The COVID-19 pandemic and herding behaviour among investors in Shariah-compliant stocks

Bougatef

Nejah

2022

JIABR

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“…Herding is a decision-making behavior in the financial market. Herding behavior is also an important issue for investors' sentiment, investment strategies and stock market stability (see Bouri et al 2021;Demirer et al 2019;Fei and Liu 2021;Guo et al 2020, for example). In finance, herding is the phenomenon of volatility clustering and time-varying characteristics in financial data.…”

Section: Introductionmentioning

confidence: 99%

A Transmission of Beta Herding during Subprime Crisis in Taiwan’s Market: DCC-MIDAS Approach

Chen

Wu²,

Zhang

et al. 2021

IJFS

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The aim of this study is to investigate the herding of beta transmission between return and volatility. We have used the dynamic conditional correlation model with the mixed-data sampling (DCC-MIDAS) model for the analysis. The evidence demonstrates that herding is a key transmitter in Taiwan’s stock market. The significant estimation of DCC-MIDAS explains that the herding phenomenon is highly dynamic and time-varying in herding behavior. By means of time-varying beta of herding based on our rolling forecasting method and robustness check of the Markov-switching regression approach using four types of portfolios, the evidence indicates that there are conditional correlations between betas and herding. In addition, it also reveals that herding forms in Taiwan’s markets during the subprime crisis period.

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“…This study on investor behavior during the COVID-19 pandemic can help investors take hedging positions to mitigate losses from the crisis. A significant finding was that investment sentiment indicators could be useful in forecasting volatility in the markets studied (Bouri et al 2021). Other sectoral studies similar to the present work have focused on the Chinese stock market, where the spill of volatility and the asymmetry between the industrial sectors of the market during the pandemic were examined.…”

Section: Introductionmentioning

confidence: 59%

Impact of COVID-19 on the Stock Market by Industrial Sector in Chile: An Adverse Overreaction

González

Larraz

2021

JRFM

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This paper studies the reaction of share prices in the Chilean securities market at the sectoral level to the arrival of COVID-19 in the country. The following question is answered: Did the Chilean market act efficiently before the arrival of COVID-19? To answer this question, an event study using a 10-day investment return window was applied to the industrial sectors that make up the IPSA (Selective Stock Price Index). To obtain the abnormal returns (AR) and cumulative abnormal returns (CAR) for the event window, three models were used: (1) adjusted average return, (2) adjusted market return, and (3) the market model. The results of the study show an overreaction to market losses, except in the utilities industry, causing greater losses after the event, which shows that information is slow to be incorporated in the previous stage and suggests that the prices of the assets do not reflect all the information available in the market. A significant finding is that the Chilean stock market responded inefficiently in the face of the arrival of the pandemic. This information is useful for investors in the formation of portfolios and/or investment strategies with a view to the long term.

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COVID-19 Pandemic and Investor Herding in International Stock Markets

Cited by 88 publications

References 48 publications

The COVID-19 pandemic and herding behaviour among investors in Shariah-compliant stocks

The COVID-19 pandemic and herding behaviour among investors in Shariah-compliant stocks

A Transmission of Beta Herding during Subprime Crisis in Taiwan’s Market: DCC-MIDAS Approach

Impact of COVID-19 on the Stock Market by Industrial Sector in Chile: An Adverse Overreaction

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