Animal Behavior in Capital markets: Herding formation dynamics, trading volume, and the role of COVID-19 pandemic

Alexakis, Christos; Chantziaras, Antonios; Economou, Fotini; Eleftheriou, Konstantinos; Grose, Christos

Abstract

This paper provides new evidence on herding behavior. Using daily frequency data for 336 US listed firms over a five-year period, we investigate three important elements of financial herding behavior. First, trading volume, representing market interest, as a significant variable in capital markets apart from stock prices. Second, herding dynamics since herding formation is a dynamic process. Third, the reaction of possible financial herding to exogenous events-threats, as we use the pandemic event in order to investigate a market under stress. Even though the benchmark herding model used does not provide evidence of herding behavior, our results verify the significance of the above herding elements. We also find that trading volume and positive changes in trading volume result in increased cross-sectional absolute deviation (CSAD). Most importantly, we find that herding behavior is evident during the COVID-19 pandemic confirming that investors tend to herd during major crisis periods.

Citation

Alexakis, C., Chantziaras, A., Economou, F., Eleftheriou, K., & Grose, C. (2023). Animal Behavior in Capital markets: Herding formation dynamics, trading volume, and the role of COVID-19 pandemic. North American Journal of Economics and Finance, 67, Article 101946. https://doi.org/10.1016/j.najef.2023.101946

• Journal Article Type: Article
• Acceptance Date: May 11, 2023
• Online Publication Date: May 16, 2023
• Publication Date: 2023-07
• Deposit Date: Feb 26, 2024
• Publicly Available Date: May 17, 2024
• Journal: The North American Journal of Economics and Finance
• Print ISSN: 1062-9408
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 67
• Article Number: 101946
• DOI: https://doi.org/10.1016/j.najef.2023.101946
• Public URL: https://durham-repository.worktribe.com/output/2287470