Title: On the time varying nature of herding behaviour: evidence from major European indices

Authors: Stavros Stavroyiannis; Vassilis Babalos

Addresses: Department of Accounting and Finance, School of Management and Economics, Technological Educational Institute of Peloponnese, Antikalamos 241 00, Greece ' Department of Accounting and Finance, School of Management and Economics, Technological Educational Institute of Peloponnese, Antikalamos 241 00, Greece

Abstract: The recent financial crisis clearly demonstrated that herding behaviour incorporates an unhedgeable systemic risk, exposing investors and financial institutions to market prices and valuations, which cannot be solely explained by fundamentals. We examine the existence of herding behaviour of major European stock market indices employing daily data during a recent period from 15 April 2005 to 31 December 2012. Following the recent events that unfolded in the Eurozone sovereign debt crisis our analysis is further expanded on two subsamples namely north and south European countries. Since the observation of significant herding patterns is very sensitive not only to the selected indices universe, but also to the time frame under consideration, a novel approach of this work is to explore the dynamics of the system with the use of time rolling window of varying size. A snick review of our results indicates significant herding behaviour for the countries under examination. Finally, we test whether herding effects became more intense during the recent financial crisis as a function of the conducted rolling window size.

Keywords: financial time series; herding behaviour; cross sectional absolute dispersion; international financial markets; time rolling window; regression; Europe; systemic risk; stock markets; sovereign debt crisis; financial crisis.

DOI: 10.1504/GBER.2015.070307

Global Business and Economics Review, 2015 Vol.17 No.3, pp.298 - 309

Received: 08 May 2021
Accepted: 12 May 2021

Published online: 21 May 2015 *

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