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Herding behavior and contagion in the cryptocurrency market

Author

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  • da Gama Silva, Paulo Vitor Jordão
  • Klotzle, Marcelo Cabus
  • Pinto, Antonio Carlos Figueiredo
  • Gomes, Leonardo Lima

Abstract

This study aimed to analyze herding behavior and contagion phenomena in the cryptocurrency market. We selected 50 of the most liquid and capitalized currencies in the period from March 2015 to November 2018 (daily data). The methodology used for detecting herding behavior comprised adaptations of the cross-sectional absolute deviation (CSAD) and cross-sectional standard deviation (CSSD) tests, as well as Hwang and Salmon’s (2004) model. For the contagion effect, we utilized adaptations of Forbes and Rigobon’s (2002) (FR) test, and FR test extensions based on the comoments of Fry, Martin, and Tang (2010) and Fry-McKibbin and Hsiao (2018). The results of using the CSSD test and Hwang and Salmon’s (2004) state space model revealed herding behavior, demonstrating extreme periods of adverse herd behavior. As regards the contagion effect, the modified FR test and its extensions with comoments were able to identify the Bitcoin contagion in other currencies in almost all cases.

Suggested Citation

  • da Gama Silva, Paulo Vitor Jordão & Klotzle, Marcelo Cabus & Pinto, Antonio Carlos Figueiredo & Gomes, Leonardo Lima, 2019. "Herding behavior and contagion in the cryptocurrency market," Journal of Behavioral and Experimental Finance, Elsevier, vol. 22(C), pages 41-50.
    • Handle: RePEc:eee:beexfi:v:22:y:2019:i:c:p:41-50
    DOI: 10.1016/j.jbef.2019.01.006
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    More about this item

    Keywords

    Herding behavior; Contagion; Cryptocurrencies; Behavioral finance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G40 - Financial Economics - - Behavioral Finance - - - General

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