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Herding behavior and digital trading during the crisis

Author

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  • Heeho Kim

    (Kyungpook National University)

  • Zhang Hongxia

    (Shandong Normal University)

Abstract

Digital innovation in the stock trading portal system may cause variations in herding behavior between the 2008 financial crisis and the pandemic crisis. Using the new digital technology has resulted in a rapid growth of turnover ratio and facilitated easy access to the internet trading portal systems, leading to a significant surge in trade volume. Focusing on the role of digital trading during the recent crisis, this paper proposes a new perspective on investigating herding behavior through the cross-sectional absolute deviation of returns (CSAD) model. Trade volume and its variance are crucially associated with herding behavior during a crisis. During this period, investors respond more promptly to exogenous shocks by rebalancing their portfolios due to digital innovations in the digital trading system compared to the past. This study utilizes panel fixed effects models and 2SLS models of daily panel data on Korean and China Shanghai A stock markets in Asia from January 2005 to 2021. The findings strongly support the new hypotheses, indicating that trade volume and its variance are significantly associated with herding behaviors in the pandemic crisis and that its impacts differ from those of the 2008 financial crisis in Asia. Recent digital innovations tend to have a more direct influence on herding behavior, albeit less indirectly through the surge in trade volume on the digital trading system. This study contributes to the extant literature by exploring the influence of digital innovation and digital trading on herding behavior during the recent crisis. The findings can be used to analyze herding behavior in foreign exchange, bond, and housing markets.

Suggested Citation

  • Heeho Kim & Zhang Hongxia, 2024. "Herding behavior and digital trading during the crisis," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(4), pages 978-998, December.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:4:d:10.1007_s12197-024-09683-w
    DOI: 10.1007/s12197-024-09683-w
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    References listed on IDEAS

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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