From COVID-19 Herd Immunity to Investor Herding in International Stock Markets: The Role of Government and Regulatory Restrictions

28 Pages Posted: 11 May 2020

See all articles by Renatas Kizys

Renatas Kizys

University of Southampton, Southampton Business School, Department of Banking and Finance

Panagiotis Tzouvanas

University of Sussex

Michael Donadelli

University of Brescia

Date Written: May 10, 2020

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.

Keywords: COVID-19, International stock markets, Investor herding, Short selling restrictions, Stringency Index

JEL Classification: G11, G15, G18, I18

Suggested Citation

Kizys, Renatas and Tzouvanas, Panagiotis and Donadelli, Michael, From COVID-19 Herd Immunity to Investor Herding in International Stock Markets: The Role of Government and Regulatory Restrictions (May 10, 2020). Available at SSRN: https://ssrn.com/abstract=3597354 or http://dx.doi.org/10.2139/ssrn.3597354

Renatas Kizys (Contact Author)

University of Southampton, Southampton Business School, Department of Banking and Finance ( email )

Room 1013, Building 4
Highfield Campus
Southampton, SO17 1BJ
United Kingdom
+442380598612 (Phone)

HOME PAGE: http://https://www.southampton.ac.uk/business-school/about/staff/rk1y18.page

Panagiotis Tzouvanas

University of Sussex ( email )

Jubilee building
Brighton, BN1 9SL
United Kingdom

Michael Donadelli

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

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