Intentional and spurious herding during unconventional events and high sentiments

Abstract

This study explores investors’ herding behavior toward the market consensus in the U.S. and Europe stock markets from January 5, 2006 to September 30, 2020. We find that the uncertainty triggered by the outbreak of the Covid-19 pandemic amplified the observed herding behavior. The occurrence of unconventional events induced herding for both markets and, moreover, this behavior is driven by non-fundamental information. We document strong evidence of herding during periods characterized by high sentiments. Finally, our analysis suggests that the ECB’s non-standard monetary policy announcements induced both spurious and intentional herding, while the Fed’s releases did not cause herding.