A cross-country analysis of herd behavior in Europe

•This paper examines country specific herding behavior in Europe.•Herding effect varies across country groups.•Herding effect differs between global and Eurozone crises. This paper examines country specific herding behavior in European liquid constituent indices for the period of 2001–2012. While we...

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Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2014-09, Vol.32, p.107-127
Main Authors: Mobarek, Asma, Mollah, Sabur, Keasey, Kevin
Format: Article
Language:English
Subjects:
Behavior
Cross-sectional Dispersion of Returns
Eastern Europe
Economic crisis
Europe
Eurozone
Eurozone Crisis
Financial crisis
Germany
Global Financial Crisis
Herding
Investment policy
Market
Policy making
Rates of return
Regulation
Securities regulations
Studies
Volatility
Western Europe
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Summary:•This paper examines country specific herding behavior in Europe.•Herding effect varies across country groups.•Herding effect differs between global and Eurozone crises. This paper examines country specific herding behavior in European liquid constituent indices for the period of 2001–2012. While we report insignificant results for the whole period, we document significant herding behavior during crises and asymmetric market conditions. Particularly, herding effect is pronounced in most continental countries during the global financial crisis and Nordic countries during the Eurozone crisis. However, PIIGS countries are the victims in both crises. Furthermore, we find evidence that the cross sectional dispersions of returns can be partly explained by the cross sectional dispersions of the other markets, with Germany having the greatest influence on the regional cross-country herding effect. Apprehensions heighten among the regulators, policy makers, and investors in the European markets for the herding behavior during volatile market conditions.
ISSN:1042-4431
1873-0612
1873-0612
DOI:10.1016/j.intfin.2014.05.008