Global Financial Crisis, COVID-19, Lockdown, and Herd Behavior in the US ESG Leader Stocks

Abstract

Using data of the constituents of the MSCI USA ESG leader index, this study investigates the herding behavior in the US ESG stocks over the period from January 03, 2007 to September 30, 2020. Our results reveal a significant herding behavior in the US ESG leader stocks. Our findings also show that herd effect is present in the US ESG stocks during both bear and bull market conditions. Our study documents the evidence of market-wide herding during the global financial crisis, COVID-19, lockdown, and post lockdown episodes. However, in all of these cases, herding is mainly characterized by intentional motives rather than fundamental factors. Finally, the outcome of our study has important implications for the investors, portfolio managers, and policy makers as herding can result in asset mispricing, adversely affecting portfolio diversification and adding to the market inefficiency.

Keywords: ESG stocks, COVID-19, Global financial crisis, Herding behavior, Capital asset pricing model

JEL Classification: G01, G4. G11, G15, M14