Digital Assets in Disarray: Unraveling Herd Behavior Amid COVID-19 and the Russia–Ukraine War

Tanveer Bagh, Mirza Muhammad Naseer and Kainat Iftikhar

Chapter 9 in Digital Banking and Finance:A Handbook, 2025, pp 227-255 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The cryptocurrency market has experienced remarkable growth since the global financial crisis, attracting widespread attention and concern due to its departure from traditional financial systems. The evolving dynamics of this market, influenced by factors such as a loss of confidence in conventional systems, underscore the need for a deeper understanding of herd behavior. Within the context of global crises, this exploration holds significance for gaining insights into investor behavior, risk management strategies and market efficiency. The study sets out to uncover patterns of herd behavior during distinct temporal segments, including the full sample, and during periods of geopolitical tension and global crises, namely the Russia–Ukraine War and the post-COVID-19 era, respectively. The dataset spans from 1 January 2018 to 31 July 2022, segmented into three periods. We employ the static method, Markov regime-switching and the GARCH method. Empirical findings indicate herd behavior in the selected cryptocurrency market considering the full sample during periods of geopolitical tension and global crises, including the Russia–Ukraine War and the COVID-19 pandemic. The chapter contributes to the literature by bringing fresh empirical perspectives into the dynamics of herd behavior during crises, emphasizing distinct patterns observed during geopolitical conflicts and global pandemics. These significant findings offer valuable insights for portfolio management, trading strategies and risk management. Understanding the determinants of herd behavior can assist investors in navigating and avoiding such patterns, particularly during crisis periods.

Keywords: FinTech; Digital Era; Financial Industry; Digital Technology; Digital Financial Industry; Digital Finance; Financial Inclusion; Bank Stability; Emerging Economies; Bibliometric Analysis; Digital Finance Revolution; Global Impacts; Digital Innovation; Insurance; Big Data Applications; Digital Assets in Disarray; Forecasting Bitcoin; Machine Learning Approach; Economic Policy Uncertainty; Cryptocurrency; Bank Shares; Digital Age; Corporate Governance; Risks; Rewards; Assets Tokenization; Future of Money; Central Bank Digital Currencies; Bank Innovation; Risk-Taking Perspective (search for similar items in EconPapers)
JEL-codes: G1 G2 G24 M41 O3 O32 O33 (search for similar items in EconPapers)
Date: 2025
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