An Empirical Investigation of Herding Behavior in CEE Stock Markets under the Global Financial Crisis

The aim of this paper is to investigate the herding behavior of investors in ten CEE stock markets for size-ranked portfolios and to assess the impact of the recent global financial crisis on the cross-sectional absolute deviation of stock returns, based on the intuitive assumption that herding behavior is more intensive during extreme market movements. Considering that the majority of studies on herding behavior are focused on the US and Asian markets and given that in emerging and frontier markets there is a slower assimilation of information into stocks prices, and in consequence a higher propensity to herd, our study fills a gap in the literature by approaching Central and Eastern European markets. We examine herding behavior by using daily data on stock prices for 384 corporations from January 2, 2003 to December 31, 2013 and we investigate for herding behavior at the level of different size-ranked portfolios of stocks. We find evidence of herding in four CEE countries for at least one quintile over the analyzed period and our results confirm that the GFC affected the gregarious behavior on CEE markets.