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Time-varying herding behavior within the Eurozone stock markets during crisis periods

Author

Listed:
  • Stavros Stavroyiannis
  • Vassilios Babalos

Abstract

Purpose - Motivated by the ongoing debate on the existence and magnitude of herding in financial markets, the purpose of this paper is to examine Eurozone stock markets for herding behavior. In the context of the present study, the authors seek for herding behavior of stock markets as a whole as opposed to previous studies that examine herding on stock level. Design/methodology/approach - To this end, the authors employ data on benchmark stock market indices for a long sample starting from 2000 through 2016. The testing procedure entails the standard Capital Asset Pricing Model-based procedure along with an advanced econometric method allowing the coefficients of the model to vary over time. Findings - Results provide evidence in favor of negative herding behavior (anti-herding) for the Eurozone as a whole with noteworthy transitions. Further analysis reveals that stock markets of the periphery exhibit scarce evidence of herding, whereas continental countries are mainly characterized by negative herding behavior. Originality/value - The present study’s main contribution is twofold. First, herding is examined not in sector or stock level as previous studies but at market level. Second, the testing methodology entails a pure time-varying regression model with stochastic volatility proposed by Nakajima (2011) that has not been previously employed in stock market herding. The results entail significant implications for investors seeking for diversification across Eurozone stock markets.

Suggested Citation

  • Stavros Stavroyiannis & Vassilios Babalos, 2019. "Time-varying herding behavior within the Eurozone stock markets during crisis periods," Review of Behavioral Finance, Emerald Group Publishing Limited, vol. 12(2), pages 83-96, July.
  • Handle: RePEc:eme:rbfpps:rbf-07-2018-0069
    DOI: 10.1108/RBF-07-2018-0069
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    Citations

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    Cited by:

    1. Saadaoui Mallek, Ray & Albaity, Mohamed & Molyneux, Philip, 2022. "Herding behaviour heterogeneity under economic and political risks: Evidence from GCC," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 345-361.
    2. Fenny Marietza & Ridwan Nurazi & Fitri Santi & Saiful, 2021. "Bibliometric Analysis Of Herding Behavior In Times Of Crisis," Papers 2106.13598, arXiv.org.
    3. Rytis Kazakeviv{c}ius & Aleksejus Kononovicius, 2023. "Anomalous diffusion and long-range memory in the scaled voter model," Papers 2301.08088, arXiv.org, revised Feb 2023.

    More about this item

    Keywords

    Crisis; Eurozone; Herding; Time-varying regression model; G01; G10; G15;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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