Herding behavior during the Covid-19 pandemic: a comparison between Asian and European stock markets based on intraday multifractality

Abstract

With the spread of Covid-19, investors’ expectations changed during 2020, as well as financial markets’ policy responses and the structure of global financial intermediation itself. These dynamics are studied in this paper, which analyzes quarterly changes in herding behavior by quantifying the self-similarity intensity of six stock markets in Asia and Europe. A multifractal detrended fluctuation analysis (MFDFA) is applied, using intraday trade prices with a 15-min frequency from Jan-2020 to Dec-2020. The empirical results confirm that Covid-19 had a significant impact on the efficiency of the stock markets under study, although with a quarterly varying impact. During the first quarter of the year, European stock markets remained efficient compared to Asian markets; in the subsequent two quarters, the Chinese stock market showed significant improvement in its efficiency and became the least inefficient market, with a decline in the market efficiency of the UK and Japan. Furthermore, European markets are more sensitive to asset losses than Asian markets, so investors are more likely to show herding in the former. Herding was at its peak during the 2nd quarter of 2020. These findings could be related to possible market inefficiencies and herding behavior, implying the possibility of investors forming profitable trading strategies.

Cross-Market Herding: Do ‘Herds’ Herd with Each Other?

“…These results are in line with evidence on herding in Asian markets during the Asian (Kim and Wei, 2002;Chiang et al, 2007;Chiang and Zheng, 2010), and global financial crises (Chong et al, 2017). With regards to 𝛾𝛾 4 , its sign appears positive in eight markets, thus showcasing that the ongoing pandemic has culminated in substantial herding across the region's markets, in line with previous studies (Aslam et al, 2021).…”

The footprints of Russia–Ukraine war on the intraday (in)efficiency of energy markets: a multifractal analysis

“…The persistent behavior, reported here, for diesel, Brent and natural gas, implies the presence of positive autocorrelation as well as herding behavior. As suggested by Aslam et al (2022b), values of hð2Þ greater than 0.5 indicate that traders intensify their herding behavior, with evidence of positive feedback-based herding behavior.…”

“…Several studies have quantified the roughness of time series, with the estimation of H€ older exponent ðH Þ (Mandelbrot, 1963;Mandelbrot and Van Ness, 1968), while others employed Hurst exponent to investigate the features of market efficiency (Domino, 2011;Caraiani, 2012;Ali et al, 2021;Aslam et al, 2021aAslam et al, , 2022b.…”

Predicting the financial behavior of Indian salaried-class individuals

“…Individuals forcefully stayed in their homes, which caused significant stress, which is both psychological and financial (Rodriguez et al, 2021). This fear and uncertainty have caused biases among less-informed individuals (Aslam et al, 2022). Kahneman and Tversky (1979) developed prospect theory highlighting that investors weigh losses more than gains of the same magnitude.…”

“…The uncertainty and fear have caused global volatility in financial markets (Aslam et al, 2020). Herding causes people to flock as they lack financial knowledge, forcing them to emulate the actions of others (Kumar & Goyal, 2016;Aslam et al, 2022). Individuals act irrationally and imitate the behavior of others out of greed or distress, which results in volatility in the market (Prosad et al, 2015).…”