Investor Herd Behaviour during the COVID-19 Pandemic: Evidence from the Johannesburg Stock Exchange

Damien Kunjal (), Saiurin Naidoo, Caleb Moonsamy, Thavania Govender, Riley Naidoo and Ebrahim Ally
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Damien Kunjal: University of the Free State, South Africa
Saiurin Naidoo: University of KwaZulu-Natal, South Africa
Caleb Moonsamy: University of KwaZulu-Natal, South Africa
Thavania Govender: University of KwaZulu-Natal, South Africa
Riley Naidoo: University of KwaZulu-Natal, South Africa

Management and Economics Review, 2023, vol. 8, issue 2, 158-169

Abstract: The COVID-19 pandemic has caused extreme volatility in financial markets globally. During periods of extreme volatility, investors tend to exhibit herd behaviour. However, herd behaviour results in market anomalies, which causes incorrect valuations and pricing. Hence, the objective of this study is to test whether COVID-19 has induced herd behaviour in South Africa's stock market. To achieve this objective, the FTSE/JSE Top 40 Index is used as a proxy for stocks trading on the Johannesburg Stock Exchange. The cross-sectional absolute deviation (CSAD) methodology is employed, and the sample period ranges from July 3, 2017 to June 30, 2021 with March 5, 2020 dividing the pre- and post-COVID-19 periods. The results suggest an absence of herd behaviour in the FTSE/JSE Top 40 Index during the full, pre- and post- COVID-19 sample periods. Therefore, this study concludes that the COVID-19 pandemic has not induced herd behaviour in the South African stock market. This could indicate that stock investors on the JSE follow their own thought and decision-making processes in periods of extreme volatility. Moreover, this may suggest that the South African stock market is efficient and that investors execute rational and well-thought out trades.

Keywords: COVID-19; Herd behaviour; Johannesburg Stock Exchange; Pandemic; Stock Market (search for similar items in EconPapers)
JEL-codes: G11 G14 G40 (search for similar items in EconPapers)
Date: 2023
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