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Herding behaviour in the cryptocurrency market: the role of uncertainty and return of classical financial markets

Author

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  • Hojjat Ansari
  • Moslem Peymany

Abstract

Purpose - The purpose of the study is to examine the impact of uncertainty and return of classical financial assets on herding behaviour in the cryptocurrency market. Also, herding in this market and the impact of the COVID-19 pandemic have been investigated. Design/methodology/approach - The study uses quantile regression to estimate the models. Daily data from ten major cryptocurrencies, the CCI30 index and three volatility indices (VIX, EVZ and GVZ), spot gold price, the MSCI and the US dollar indices from January 2018 to December 2023 have been used. Findings - The findings show evidence of anti-herding during periods of simultaneous high volatility in stock and currency markets, as well as in the gold and currency markets. However, the results support herding in the whole sample period, which reduces when including the COVID-19 pandemic effect. In addition, the study does not support the relationship between returns of traditional financial assets and herding in the cryptocurrency market. Practical implications - The result of the study can be useful for investors, particularly the managers of the novel class of ETFs, to make their investment decisions more consciously, regarding uncertainty in other financial markets. Also, the findings provide some insight to regulators regarding the herding behaviour in the cryptocurrency market and its influences on the financial system’s stability. Originality/value - To the best of the authors’ knowledge, for the first time, this study examines the impact of concurrent high uncertainty conditions in classical financial markets on herding behaviour in the cryptocurrency market.

Suggested Citation

  • Hojjat Ansari & Moslem Peymany, 2024. "Herding behaviour in the cryptocurrency market: the role of uncertainty and return of classical financial markets," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 42(2), pages 274-288, September.
    • Handle: RePEc:eme:sefpps:sef-06-2024-0373
    DOI: 10.1108/SEF-06-2024-0373
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    More about this item

    Keywords

    Herding behaviour; Anti-herding; Uncertainty; Cryptocurrency; Quantile regression; C10; C31; C32; G14; G41;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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