HERDING BEHAVIOR IN VOLATILE MARKET REGIMES: AN IN-DEPTH ANALYSIS OF COINS, TOKENS, PANDEMIC, PENNY, AND PRICEY CRYPTOCURRENCIES
DOI:
https://doi.org/10.33736/ijbs.5960.2023Keywords:
Cryptocurrency, herding, coins, tokens, COVID-19Abstract
This study comprehensively analyzes herding behavior in the cryptocurrency market. First, we conduct an in-depth investigation of herding behavior in the overall cryptocurrency market. Second, we form several groups of cryptocurrencies according to their characteristics and analyze whether each group behaves similarly in volatile market regimes. Third, we investigate whether herding existed in each cryptocurrency group before and during the COVID-19 pandemic. Using a sample of 227 cryptocurrencies constituting nearly 95% of market capitalization, we reveal that herding behavior was absent in the overall sample and sub-samples comprising cryptocurrency groups. Further, the anti-herding behavior implies a contrarian response to the crowd. This anti-herding can be explained from two views: rational behavior of taking profit from market irrationality and irrational behavior due to fear or recency bias.
References
Ajaz, T., & Kumar, A. S. (2018). Herding in crypto-currency markets. Annals of Financial Economics, 13(2), 1850006. Amirat, A., & Alwafi, W. (2020). Does herding behavior exist in cryptocurrency market? Cogent Economics & Finance, 8(1), 1735680. Ballis, A., & Drakos, K. (2020). Testing for herding in the cryptocurrency market. Finance Research Letters, 33, 101210. Bikhchandani, S., & Sharma, S. (2000). Herd behavior in financial markets. IMF Staff papers, 47(3), 279-310. Boako, G., Tiwari, A. K., & Roubaud, D. (2019). Vine copula-based dependence and portfolio value-at-risk analysis of the cryptocurrency market. International Economics, 158, 77-90. Bouri, E., Das, M., Gupta, R., & Roubaud, D. (2018). Spillovers between Bitcoin and other assets during bear and bull markets. Applied Economics, 50(55), 5935-5949. Bouri, E., Gupta, R., & Roubaud, D. (2019). Herding behaviour in cryptocurrencies. Finance Research Letters, 29, 216-221.
Brahmana, R., Hooy, C. W., & Ahmad, Z. (2012). Psychological factors on irrational financial decision making: Case of day‐of‐the week anomaly. Humanomics, 28(4), 236-257. Brahmana, R., Hooy, C. W., & Ahmad, Z. (2012). The role of herd behviour in determining the investor's Monday irrationality. Asian Academy of Management Journal of Accounting & Finance, 8(2). Chang, E. C., Cheng, J. W., & Khorana, A. (2000). An examination of herd behavior in equity markets: An international perspective. Journal of Banking & Finance, 24(10), 1651-1679.
https://doi.org/10.1108/08288661211277317
Christie, W.G., & Huang, R.D. (1995). Following the pied piper: do individual returns herd around the market? Financial Analysts Journal, 51(4), 31-37. Corbet, S., Larkin, C., & Lucey, B. (2020). The contagion effects of the COVID-19 pandemic: Evidence from gold and cryptocurrencies. Finance Research Letters, 35, 101554. Corbet, S., Larkin, C., Lucey, B., & Yarovaya, L. (2020). KODAKCoin: a blockchain revolution or exploiting a potential cryptocurrency bubble?. Applied Economics Letters, 27(7), 518-524. Corbet, S., Lucey, B., Urquhart, A., & Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis, 62, 182-199. da Gama Silva, P. V. J., Klotzle, M. C., Pinto, A. C. F., & Gomes, L. L. (2019). Herding behavior and contagion in the cryptocurrency market. Journal of Behavioral and Experimental Finance, 22, 41-50. Dhawan, A., & Putniņš, T. J. (2023). A new wolf in town? Pump-and-dump manipulation in cryptocurrency markets. Review of Finance, 27(3), 935-975. Easley, D., & Kleinberg, J. (2012). Networks, crowds, and markets. Cambridge Books. Feinstein, B. D., & Werbach, K. (2021). The impact of cryptocurrency regulation on trading markets. Journal of Financial Regulation, 7(1), 48-99.
Gu, X., Ying, S., Zhang, W., Tao, Y., 2020. How do firms respond to COVID-19? First evidence from Suzhou, China. Emerging Markets Finance and Trade, 56(10), 2181-2197. Gümüş, G. K., Gümüş, Y., & Çimen, A. (2019). Herding behaviour in cryptocurrency market: CSSD and CSAD analysis. In Blockchain Economics and Financial Market Innovation (pp. 103-114). Springer, Cham. Haryanto, S., Subroto, A., & Ulpah, M. (2020). Disposition effect and herding behavior in the cryptocurrency market. Journal of Industrial and Business Economics, 47(1), 115-132. Haryanto, S., Subroto, A., & Ulpah, M. (2020). Disposition effect and herding behavior in the cryptocurrency market. Journal of Industrial and Business Economics, 47, 115-132. He, P., Sun, Y., Zhang, Y., & Li, T. (2020). COVID-19's impact on stock prices across different sectors-An event study based on the Chinese stock market. Emerging Markets Finance and Trade, 56(10), 2198-2212. Jalal, R. N. U. D., Sargiacomo, M., Sahar, N. U., & Fayyaz, U. E. (2020). Herding behavior and cryptocurrency: Market asymmetries, inter-dependency and intra-dependency. The Journal of Asian Finance, Economics, and Business, 7(7), 27-34. Jiang, Z., & Liang, J. (2017, September). Cryptocurrency portfolio management with deep reinforcement learning. In 2017 Intelligent Systems Conference (IntelliSys) (pp. 905-913). IEEE. Kallinterakis, V., & Wang, Y. (2019). Do investors herd in cryptocurrencies-and why? Research in International Business and Finance, 50, 240-245. Katsiampa, P., Moutsianas, K., & Urquhart, A. (2019). Information demand and cryptocurrency market activity. Economics Letters, 185, 108714. Kosc, K., Sakowski, P., & Ślepaczuk, R. (2019). Momentum and contrarian effects on the cryptocurrency market. Physica A: Statistical Mechanics and its Applications, 523, 691-701. Kumar, A. (2020). Empirical investigation of herding in cryptocurrency market under different market regimes. Review of Behavioral Finance, 13(3), 297-308. Lakonishok, J., Shleifer, A., & Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of financial economics, 32(1), 23-43. Lee, K. (2017). Herd behavior of the overall market: Evidence based on the cross-sectional comovement of returns. The North American Journal of Economics and Finance, 42, 266-284. Malkiel, B. G., & Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25, 383- 417. Mandaci, P. E., & Cagli, E. C. (2021). Herding intensity and volatility in cryptocurrency markets during the COVID-19. Finance Research Letters, 102382. Mishra, A. K., Rath, B. N., & Dash, A. K. (2020). Does the Indian financial market nosedive because of the COVID-19 outbreak, in comparison to after demonetisation and the GST?. Emerging Markets Finance and Trade, 56(10), 2162-2180. Mnif, E., Jarboui, A., & Mouakhar, K. (2020). How the cryptocurrency market has performed during COVID 19? A multifractal analysis. Finance Research Letters, 36, 101647. Omane-Adjepong, M., Paul Alagidede, I., Lyimo, A. G., & Tweneboah, G. (2021). Herding behaviour in cryptocurrency and emerging financial markets. Cogent Economics & Finance, 9(1), 1933681.
Papadamou, S., Kyriazis, N. A., & Tzeremes, P. G. (2021). Non-linear causal linkages of EPU and gold with major cryptocurrencies during bull and bear markets. The North American Journal of Economics and Finance, 56, 101343. Parveen, S., Satti, Z.W., Subhan, Q.A., Riaz, N., Baber, S.F. and Bashir, T. (2021), "Examining investors' sentiments, behavioral biases and investment decisions during COVID-19 in the emerging stock market: a case of Pakistan stock market", Journal of Economic and Administrative Sciences Phan, D. H. B., & Narayan, P. K. (2020). Country responses and the reaction of the stock market to COVID-19-A preliminary exposition. Emerging Markets Finance and Trade, 56(10), 2138-2150. Philippas, D., Philippas, N., Tziogkidis, P., & Rjiba, H. (2020). Signal-herding in cryptocurrencies. Journal of International Financial Markets, Institutions and Money, 65, 101191. Raimundo Júnior, G. D. S., Palazzi, R. B., Tavares, R. D. S., & Klotzle, M. C. (2022). Market stress and herding: a new approach to the cryptocurrency market. Journal of Behavioral Finance, 23(1), 43-57. Rubbaniy, G., Polyzos, S., Rizvi, S. K. A., & Tessema, A. (2021). COVID-19, lockdowns and herding towards a cryptocurrency market-specific implied volatility index. Economics Letters, 207, 110017. Shen, D., Urquhart, A., & Wang, P. (2019). Does twitter predict Bitcoin?. Economics Letters, 174, 118-122. Shiller, R. J. (2003). From efficient markets theory to behavioral finance. Journal of economic perspectives, 17(1), 83-104. Shleifer, A., & Summers, L. H. (1990). The noise trader approach to finance. Journal of Economic perspectives, 4(2), 19-33. Sias, R. W. (2004). Institutional herding. The Review of Financial Studies, 17(1), 165-206. Stavroyiannis, S., & Babalos, V. (2019). Herding behavior in cryptocurrencies revisited: novel evidence from a TVP model. Journal of Behavioral and Experimental Finance, 22, 57-63. Susana, D., Kavisanmathi, J. K., & Sreejith, S. (2020, December). Does herding behaviour among traders increase during COVID 19 pandemic? Evidence from the cryptocurrency market. In International Working Conference on Transfer and Diffusion of IT (pp. 178-189). Springer, Cham. Tversky, A., & Kahneman, D. (1973). Availability: A heuristic for judging frequency and probability. Cognitive psychology, 5(2), 207-232. Urquhart, A. (2016). The inefficiency of Bitcoin. Economics Letters, 148, 80-82. Urquhart, A. (2016). The inefficiency of Bitcoin. Economics Letters, 148, 80-82. Urquhart, A. (2017). Price clustering in Bitcoin. Economics letters, 159, 145-148. Urquhart, A. (2018). What causes the attention of Bitcoin?. Economics Letters, 166, 40-44. Urquhart, A., & Yarovaya, L. (2020). Introduction to cryptocurrencies. In Cryptocurrency and Blockchain Technology (pp. 1-8). De Gruyter. Vidal-Tomás, D., & Ibañez, A. (2018). Semi-strong efficiency of Bitcoin. Finance Research Letters, 27, 259-265. Vidal-Tomás, D., Ibáñez, A. M., & Farinós, J. E. (2019). Herding in the cryptocurrency market: CSSD and CSAD approaches. Finance Research Letters, 30, 181-186. W Senarathne, C., & Jianguo, W. (2020). Herd behaviour in the cryptocurrency market: Fundamental vs. spurious herding. The European Journal of Applied Economics, 17(1), 20-36. Yadav, S. P., Agrawal, K. K., Bhati, B. S., Al-Turjman, F., & Mostarda, L. (2020). Blockchain-based cryptocurrency regulation: an overview. Computational Economics, 1-17. Yarovaya, L., Matkovskyy, R., & Jalan, A. (2021). The effects of a "black swan" event (COVID-19) on herding behavior in cryptocurrency markets. Journal of International Financial Markets, Institutions and Money, 101321.
Downloads
Published
How to Cite
Issue
Section
License
Copyright Transfer Statement for Journal
1) In signing this statement, the author(s) grant UNIMAS Publisher an exclusive license to publish their original research papers. The author(s) also grant UNIMAS Publisher permission to reproduce, recreate, translate, extract or summarize, and to distribute and display in any forms, formats, and media. The author(s) can reuse their papers in their future printed work without first requiring permission from UNIMAS Publisher, provided that the author(s) acknowledge and reference publication in the Journal.
2) For open access articles, the author(s) agree that their articles published under UNIMAS Publisher are distributed under the terms of the CC-BY-NC-SA (Creative Commons Attribution-Non Commercial-Share Alike 4.0 International License) which permits unrestricted use, distribution, and reproduction in any medium, for non-commercial purposes, provided the original work of the author(s) is properly cited.
3) For subscription articles, the author(s) agree that UNIMAS Publisher holds copyright, or an exclusive license to publish. Readers or users may view, download, print, and copy the content, for academic purposes, subject to the following conditions of use: (a) any reuse of materials is subject to permission from UNIMAS Publisher; (b) archived materials may only be used for academic research; (c) archived materials may not be used for commercial purposes, which include but not limited to monetary compensation by means of sale, resale, license, transfer of copyright, loan, etc.; and (d) archived materials may not be re-published in any part, either in print or online.
4) The author(s) is/are responsible to ensure his or her or their submitted work is original and does not infringe any existing copyright, trademark, patent, statutory right, or propriety right of others. Corresponding author(s) has (have) obtained permission from all co-authors prior to submission to the journal. Upon submission of the manuscript, the author(s) agree that no similar work has been or will be submitted or published elsewhere in any language. If submitted manuscript includes materials from others, the authors have obtained the permission from the copyright owners.
5) In signing this statement, the author(s) declare(s) that the researches in which they have conducted are in compliance with the current laws of the respective country and UNIMAS Journal Publication Ethics Policy. Any experimentation or research involving human or the use of animal samples must obtain approval from Human or Animal Ethics Committee in their respective institutions. The author(s) agree and understand that UNIMAS Publisher is not responsible for any compensational claims or failure caused by the author(s) in fulfilling the above-mentioned requirements. The author(s) must accept the responsibility for releasing their materials upon request by Chief Editor or UNIMAS Publisher.
6) The author(s) should have participated sufficiently in the work and ensured the appropriateness of the content of the article. The author(s) should also agree that he or she has no commercial attachments (e.g. patent or license arrangement, equity interest, consultancies, etc.) that might pose any conflict of interest with the submitted manuscript. The author(s) also agree to make any relevant materials and data available upon request by the editor or UNIMAS Publisher.
