Herding Behavior in Developed, Emerging, and Frontier European Stock Markets during COVID-19 Pandemic

Abstract

The behavior of market participants often does not rely on market signals, but replicates the investment decisions of other parties. The convergence of their investment behavior leads to the emergence of herd behavior with negative implications for financial stability. Moreover, this phenomenon may be even more pronounced in times of crisis. Although herding is an interesting topic which invites the interest of academic researchers, it still has not been sufficiently studied in terms of comparing the herd effect between differently developed stock markets. The first objective of this research was to determine the herd behavior during the COVID-19 pandemic using static and rolling regression analysis. The second objective was to investigate whether the herd behavior was triggered by the pandemic, while the third objective was to compare the differences in herd behavior between differently developed European stock markets. The results show that this phenomenon is most pronounced in emerging markets, followed by frontier markets and developed markets. Therefore, the results of this study are of particular importance for individual and institutional investors to achieve efficient risk diversification and for financial authorities to establish rules and avoid an increase in herd behavior.

Investor behavior and psychological effects: herding and anchoring biases in the MENA region

“…Now we pass to the evaluation of herding behavior in these markets, we consider the same methodology employed by Chang et al . (2000), Chaffai and Medhioub (2018), Shrotryia and Kalra (2021), Bogdan et al . (2022) etc.…”

“…4.1.2 Herding bias empirical results. Now we pass to the evaluation of herding behavior in these markets, we consider the same methodology employed by Chang et al (2000), Chaffai and Medhioub (2018), Shrotryia and Kalra (2021), Bogdan et al (2022) etc. As we said earlier in this paper, because of the non-validity of the linear regression conditions, quantile regression approach applied largely and successfully in herding behavior analysis was proposed this paper.…”

The impact of disposition effect, herding and overconfidence on investment decision making moderated by financial literacy

“…Herding bias has a positive and significant effect on investment decision making, according to Ranaweera and Kawshala (2021); Madaan and Singh (2019), who studied investor behaviour in making stock market investment decisions. Several studies have analysed and tested the effect of herding on investment decision making, including (Bogdan et al, 2022;Yasir et al, 2022;Kyriazis, 2020;Atif Sattar et al, 2020;Riaz et al, 2020;Alrabadi et al, 2018;Hayat & Anwar, 2016).…”

“…Herding bias has a positive and significant effect on investment decision making, according to Ranaweera & Kawshala, (2021); Madaan and Singh (2019). In addition, Bogdan et al, (2022); Yasir et al, (2022); Budiman & Patricia, (2021); Kartini & Nahda, (2021); Kyriazis, (2020); Atif ; R. Ahmed et al, (2021) ; Robin & Angelina, (2020); Devadas & Vijayakumar, (2019); Alrabadi et al However, contrary to the findings of Z. Ahmed et al, (2022);; Bakar & Yi, (2016a); and Khan's research, (2020), herding has no significant effect on investment decision making.…”

Impact of Liquidity and Investors Sentiment on Herd Behavior in Cryptocurrency Market

“…While herd behavior has been extensively studied in financial markets (Gavrilakis and Floros 2023;Bougatef and Nejah 2023;Fei and Zhang 2023;Yang and Chuang 2023;Tlili et al 2023;Bogdan et al 2022;Bouri et al 2021), its study in the cryptocurrency market is still limited. Therefore, this article focuses on herd behavior in the crypto market for several reasons.…”