Herd behavior in U.S. bank stocks

Destan Kirimhan, James Payne and Osamah AlKhazali

Finance Research Letters, 2024, vol. 67, issue PB

Abstract: This study investigates investor herd biases in U.S. banks' stock returns before, after, and during the COVID-19 pandemic by focusing on the differential impacts of monetary policy cycles and bank regulatory framework. Our results display fundamental herding for both large stress-tested banks and non-stress-tested regional banks during the pre-pandemic tightening monetary policy period in which bank fundamentals were improved through regulatory changes after the global financial crisis. However, we find evidence of nonfundamental herding during the post-pandemic tightening monetary policy period in which bank fundamentals were weakened. This situation might have contributed to the value irrelevance of bank fundamental information to stock prices. Our results have important implications for regulators, policymakers, and investors.

Keywords: Herd bias; Silicon Valley bank; Bank risks; Covid-19 pandemic; Monetary policy; Stress-tests (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009607

DOI: 10.1016/j.frl.2024.105930

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