Herding behaviour under Extreme Market Conditions. New Evidence in Developed Capital Markets

This paper aims at analyzing the presence of gregarious behavior within the main developed equity markets, namely the US, European and Asian markets, taking as proxy the absolute deviation of stock returns from markets’ (CSAD) for the companies composing the S&P500, STOXX600 and NIKKEI225 indices. The period used for daily stock prices starts from 12/31/2004 to 06/30/2023. Thus, we proposed several regression versions targeting investors’ behavior in relation to market direction in various volatility scenarios starting from Chang’s (2000) analysis model. The sentiment specific side was quantified by means of the RSI index, therefore having a complete analysis of this social bias. Furthermore, using the three- and five-factor Fama-French models, we were able to delineate herding behavior as fundamental or non-fundamental depending on the information underlying investors’ decisions. In order to better isolate the phenomenon based on the sample, we used the quantile-based QREG method in addition to the OLS method. Following the synthesis of the empirical study, the results obtained emphasize the presence of the herding bias in the analyzed markets under different economic hypostases.