COVID-19, Lockdowns and Herding Towards a Cryptocurrency Market-Specific Implied Volatility Index

Abstract

This study investigates herd effects in 101 cryptocurrencies during the period from January 2015 to June 2020. The results confirm the existence of herding behavior in the cryptocurrency market for the entire sample and show that herding asymmetry is present during both bullish and bearish regimes. Herd investing is predominantly visible during extremely bullish conditions of the cryptocurrency market. Even though the study finds no evidence of correlated trading when cryptocurrency specific fear prevails in the market, crypto investors seem to mimic the trading decisions of others during the COVID-19 pandemic, outside the lockdown periods.

Keywords: COVID-19; Herding behavior; Cryptocurrencies; VCRIX; Market fear

JEL Classification: G12, G15