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Investor Herd Behaviour during the COVID-19 Pandemic: Evidence from the Johannesburg Stock Exchange

Author

Listed:
  • Damien KUNJAL

    (University of the Free State, South Africa)

  • Saiurin NAIDOO

    (University of KwaZulu-Natal, South Africa)

  • Caleb MOONSAMY

    (University of KwaZulu-Natal, South Africa)

  • Thavania GOVENDER

    (University of KwaZulu-Natal, South Africa)

  • Riley NAIDOO

    (University of KwaZulu-Natal, South Africa)

  • Ebrahim ALLY

Abstract

The COVID-19 pandemic has caused extreme volatility in financial markets globally. During periods of extreme volatility, investors tend to exhibit herd behaviour. However, herd behaviour results in market anomalies, which causes incorrect valuations and pricing. Hence, the objective of this study is to test whether COVID-19 has induced herd behaviour in South Africa’s stock market. To achieve this objective, the FTSE/JSE Top 40 Index is used as a proxy for stocks trading on the Johannesburg Stock Exchange. The cross-sectional absolute deviation (CSAD) methodology is employed, and the sample period ranges from July 3, 2017 to June 30, 2021 with March 5, 2020 dividing the pre- and post-COVID-19 periods. The results suggest an absence of herd behaviour in the FTSE/JSE Top 40 Index during the full, pre- and post- COVID-19 sample periods. Therefore, this study concludes that the COVID-19 pandemic has not induced herd behaviour in the South African stock market. This could indicate that stock investors on the JSE follow their own thought and decision-making processes in periods of extreme volatility. Moreover, this may suggest that the South African stock market is efficient and that investors execute rational and well-thought out trades.

Suggested Citation

  • Damien KUNJAL & Saiurin NAIDOO & Caleb MOONSAMY & Thavania GOVENDER & Riley NAIDOO & Ebrahim ALLY, 2023. "Investor Herd Behaviour during the COVID-19 Pandemic: Evidence from the Johannesburg Stock Exchange," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 8(2), pages 158-169, June.
    • Handle: RePEc:rom:merase:v:8:y:2023:i:2:p:158-169
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    More about this item

    Keywords

    COVID-19; Herd behaviour; Johannesburg Stock Exchange; Pandemic; Stock Market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General

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