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

Author

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  • Siniša Bogdan

    (Faculty of Tourism and Hospitality Management, University of Rijeka, 51410 Opatija, Croatia)

  • Natali Suštar

    (Faculty of Tourism and Hospitality Management, University of Rijeka, 51410 Opatija, Croatia)

  • Bojana Olgić Draženović

    (Faculty of Economics and Business, University of Rijeka, 51000 Rijeka, Croatia)

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.

Suggested Citation

  • Siniša Bogdan & Natali Suštar & Bojana Olgić Draženović, 2022. "Herding Behavior in Developed, Emerging, and Frontier European Stock Markets during COVID-19 Pandemic," JRFM, MDPI, vol. 15(9), pages 1-12, September.
    • Handle: RePEc:gam:jjrfmx:v:15:y:2022:i:9:p:400-:d:911349
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    References listed on IDEAS

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    1. Chang, Eric C. & Cheng, Joseph W. & Khorana, Ajay, 2000. "An examination of herd behavior in equity markets: An international perspective," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1651-1679, October.
    2. Papadamou, Stephanos & Kyriazis, Nikolaos A. & Tzeremes, Panayiotis & Corbet, Shaen, 2021. "Herding behaviour and price convergence clubs in cryptocurrencies during bull and bear markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
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    4. Marwan Mohamed Abdeldayem & Saeed Hameed Al Dulaimi, 2020. "Investors’ herd behavior related to the pandemic-risk reflected on the GCC stock markets," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 563-584.
    5. Guney, Yilmaz & Kallinterakis, Vasileios & Komba, Gabriel, 2017. "Herding in frontier markets: Evidence from African stock exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 47(C), pages 152-175.
    6. Ferreruela, Sandra & Mallor, Tania, 2021. "Herding in the bad times: The 2008 and COVID-19 crises," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
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    Cited by:

    1. Bo-Chiuan Su & Li-Wei Wu & Hongxi Lin & Chieh-An Lin, 2023. "The Mediating Effect of Herd Behavior and Brand Attitude towards the Impact of Spokesman Credibility, Source Fit, and Online Word-of-Mouth on Purchase Intention," Sustainability, MDPI, vol. 15(1), pages 1-21, January.
    2. Richard T. Ampofo & Eric N. Aidoo & Bernard O. Ntiamoah & Ophelia Frimpong & Daniel Sasu, 2023. "An empirical investigation of COVID-19 effects on herding behaviour in USA and UK stock markets using a quantile regression approach," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(2), pages 517-540, June.

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