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From COVID-19 herd immunity to investor herding in international stock markets: the role of government and regulatory restrictions

From COVID-19 herd immunity to investor herding in international stock markets: the role of government and regulatory restrictions
From COVID-19 herd immunity to investor herding in international stock markets: the role of government and regulatory restrictions

We study if government response to the novel coronavirus COVID-19 pandemic can mitigate investor herding behaviour in international stock markets. Our empirical analysis is informed by daily stock market data from 72 countries from both developed and emerging economies in the first quarter of 2020. The government response to the COVID-19 outbreak is measured by means of the Oxford COVID-19 Government Response Tracker, where higher scores are associated with greater stringency. Three main findings are in order. First, results show evidence of investor herding in international stock markets. Second, we document that the Oxford Government Response Stringency Index mitigates investor herding behaviour, by way of reducing multidimensional uncertainty. Third, short-selling restrictions, temporarily imposed by the national and supranational regulatory authorities of the European Union, appear to exert a mitigating effect on herding. Finally, our results are robust to a range of model specifications.

COVID-19, International stock markets, Investor herding, Short-selling restrictions, Stringency Index
1057-5219
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Tzouvanas, Panagiotis
f8c0fae8-aebe-406b-9df5-e40fd4c81fbb
Donadelli, Michael
9836edb9-15f5-4bbc-9f57-cf4636285390
Kizys, Renatas
9d3a6c5f-075a-44f9-a1de-32315b821978
Tzouvanas, Panagiotis
f8c0fae8-aebe-406b-9df5-e40fd4c81fbb
Donadelli, Michael
9836edb9-15f5-4bbc-9f57-cf4636285390

Kizys, Renatas, Tzouvanas, Panagiotis and Donadelli, Michael (2021) From COVID-19 herd immunity to investor herding in international stock markets: the role of government and regulatory restrictions. International Review of Financial Analysis, 74, [101663]. (doi:10.1016/j.irfa.2021.101663).

Record type: Article

Abstract

We study if government response to the novel coronavirus COVID-19 pandemic can mitigate investor herding behaviour in international stock markets. Our empirical analysis is informed by daily stock market data from 72 countries from both developed and emerging economies in the first quarter of 2020. The government response to the COVID-19 outbreak is measured by means of the Oxford COVID-19 Government Response Tracker, where higher scores are associated with greater stringency. Three main findings are in order. First, results show evidence of investor herding in international stock markets. Second, we document that the Oxford Government Response Stringency Index mitigates investor herding behaviour, by way of reducing multidimensional uncertainty. Third, short-selling restrictions, temporarily imposed by the national and supranational regulatory authorities of the European Union, appear to exert a mitigating effect on herding. Finally, our results are robust to a range of model specifications.

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Covid_19_Finance_Project_17_ - Accepted Manuscript
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Accepted/In Press date: 30 December 2020
e-pub ahead of print date: 12 January 2021
Keywords: COVID-19, International stock markets, Investor herding, Short-selling restrictions, Stringency Index

Identifiers

Local EPrints ID: 446492
URI: http://eprints.soton.ac.uk/id/eprint/446492
ISSN: 1057-5219
PURE UUID: 387c1cd4-ad28-4181-b6fb-a36c05bb36dc
ORCID for Renatas Kizys: ORCID iD orcid.org/0000-0001-9104-1809

Catalogue record

Date deposited: 11 Feb 2021 17:33
Last modified: 15 Jul 2022 04:01

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Contributors

Author: Renatas Kizys ORCID iD
Author: Panagiotis Tzouvanas
Author: Michael Donadelli

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