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Identifying Herding Behavior Using Garch Before and During the Covid-19 Pandemic

Author

Listed:
  • Suhendro Suhendro

    (Batik Islamic University, Indonesia)

  • Apriani Dorkas Rambu Atahau

    (Satya Wacana Christian University, Indonesia)

  • Robiyanto Robiyanto

    (Satya Wacana Christian University, Indonesia)

  • Harijono Harijono

    (Satya Wacana Christian University, Indonesia)

Abstract

This paper examines herding behavior in the Indonesian and Chinese capital markets before and during the COVID-19 pandemic. Stocks listed in the LQ45 (Indonesia) and SSE50 (China) in 2015-2021 are utilized. The results of daily data analysis of the dispersion of individual stock returns against market returns indicate that GARCH is a reliable model. We find that LQ45 investors do not exhibit herding in bullish/bearish conditions, including extreme markets during the pandemic. The findings indicate that high market volatility is not related to herding behavior. Nevertheless, SSE50 investors exhibit a different behavior, i.e., herding occurred in bearish conditions before the pandemic. These results imply that although institutional and long-term-oriented investors dominate the blue-chip stocks, they still make decisions by imitating market consensus or other investors. The presence of herding strengthens the behavioral finance theory regarding irrational behavior. However, the volatility index does not affect the herding model on both indices

Suggested Citation

  • Suhendro Suhendro & Apriani Dorkas Rambu Atahau & Robiyanto Robiyanto & Harijono Harijono, 2025. "Identifying Herding Behavior Using Garch Before and During the Covid-19 Pandemic," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 28(4), pages 523-552, December.
    • Handle: RePEc:idn:journl:v:28:y:2025:i:4b:p:523-552
    DOI: https://doi.org/10.59091/2460-9196.2757
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    References listed on IDEAS

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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