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Herding behavior in African stock markets: A state-space assessment during times of crisis

Author

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  • Assoe, Kodjovi
  • Mbengue, Mohamed Lamine
  • Sène, Babacar
  • Sy, Oumar

Abstract

This study investigates the dynamics of herding behavior across 17 African stock markets from 2009 to 2022, encompassing major crises such as the European debt crisis, the Arab Spring, the Ebola outbreak, Brexit, COVID-19, and the Russia-Ukraine conflict. Employing state-space models, we find significant and persistent herding patterns across all markets. The time-varying herding dynamics reveal slightly negative, albeit statistically significant, herding during normal times. Contrary to conventional expectations, herding does not intensify during crises. Instead, investors tend to focus on fundamentals rather than following the crowd. These results provide novel insights into the behavior of African stock markets under stress.

Suggested Citation

  • Assoe, Kodjovi & Mbengue, Mohamed Lamine & Sène, Babacar & Sy, Oumar, 2025. "Herding behavior in African stock markets: A state-space assessment during times of crisis," Finance Research Letters, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:finlet:v:79:y:2025:i:c:s1544612325004714
    DOI: 10.1016/j.frl.2025.107208
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    References listed on IDEAS

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    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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