Abstract
This study investigates the investor behavior in Asian emerging markets during the COVID pandemic period and assesses the asymmetric patterns and the influence of global and regional return dynamics on local investor behavior. It uses daily firm-level data from January 2001 to December 2020 for nine Asian emerging countries: China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand to estimate the impact of extreme price movements, market liquidity and US and Chinese market returns on local return dispersions using a non-linear specification. The findings indicate that rational price behavior prevailed in all markets over the COVID period. Though herding manifested itself occasionally during the low trading volume days in the pandemic period; overall, herd formation was not observed conditioned on domestic or non-domestic factors. Infact, our comparison of pre-COVID and COVID periods shows a significant shift in investment behavior away from herding and in favor of market efficiency for emerging markets of China, India and Korea. The findings on prevalence of rational price behavior are unique and reflective of improved informational environment in Asian emerging markets.
Highlights
Market efficiency hypothesis assumes that investors form rational expectations and make informed decisions based on their own independent analysis
The comparisons suggest that our findings of investment behavior over the pre-COVID period is not impacted by the financial crisis period
We investigate the investor behavior in the fast-growing Asian emerging markets before and after the COVID outbreak using the data for the period 2001 to 2020
Summary
Market efficiency hypothesis assumes that investors form rational expectations and make informed decisions based on their own independent analysis. We contribute to the literature by assessing the investor behavior in nine Asian emerging markets: China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Taiwan and Thailand over the period from 2001 to 2020 Available studies from these countries focus mainly on investment behavior in individual countries. Tan et al (2008), Chiang et al (2010) and Chong et al (2017) investigated investor behavior in China; Prosad et al (2012) and Chauhan et al (2020) checked for herding in Indian market; Brahmana et al (2012) and Dehghani and Sapian (2014) conducted studies on herding from Malaysia; Akbar et al (2019), Rajput and Bhutto (2019) and Jabeen and Rizavi (2019) reported evidence of herding from Pakistan and Chang et al (2012) investigated herding in Taiwan Findings of these studies from individual markets are based on different data periods making them incomparable.
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