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Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes

Year 2023, Issue: 68, 130 - 140, 20.12.2023

Patrice Racine Dıallo , Bakhtiyar Garayev , Ozlem Sayılır , Muhammed Aslam Chelery Komath

https://doi.org/10.26650/JECS2023-1287486

Abstract

Herding behavior is expected to intensify with increasing uncertainty in financial markets, especially after jarring structural changes such as thepandemic. For this reason, in this study we examined herding behavior in the cryptocurrency market amid market crashes. Using daily cryptocurrency price data in 02.01.2018 - 22.03.2023 of the 9 most traded cryptocurrencies, the presence of herding behavior was investigated using the cross-sectional absolute deviation (CSAD) method. The dynamics of herding behavior was explored in 3 sub-periods: the Pre-Covid Period, the Covid-19 Period and the Post Market Crash Period after Tesla’s Announcement. We also tested if the largest cryptocurrencies were driving small cryptocurrencies in the 3 sub-periods as well as the whole period. The findings of the study reveal that there is no herding in the market in significant market fluctuations. Moreover, there seems to be no asymmetric herding behavior as we distinguish between up and down markets. Hence, our findings imply rational investment decision-making. Yet, the results indicate that the largest cryptocurrencies are wielding a substantial influence over the rest of the market across the overall period and in the Post Covid Period (Period 2) in both up and down markets. However, in Period 1 and Period 3, the herding of small cryptocurrencies varies depending on whether the market returns are positive or negative. Our findings imply that the dynamics of the herding behavior between large and small cryptocurrencies has shifted with significant market crashes (outbreak of Covid-19, Tesla’s announcement).

Keywords

Herding Behavior Cryptocurrency Markets Market Crashes Covid-19

References

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  • Sias, R. W. (2004). Institutional herding. The review of financial studies, 17(1), 165-206. google scholar
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  • Tversky, A.,& Kahneman, D. (1989). Rational choice and the framing of decisions. Paper presented at the Multiple criteria decision making and risk analysis using microcomputers. google scholar
  • Vidal-Tomas, D. (2021). The entry and exit dynamics of the cryptocurrency market. Research in International Business and Finance, 58, 101-504. google scholar
  • 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, 75, 101-321. google scholar

Year 2023, Issue: 68, 130 - 140, 20.12.2023

Patrice Racine Dıallo , Bakhtiyar Garayev , Ozlem Sayılır , Muhammed Aslam Chelery Komath

https://doi.org/10.26650/JECS2023-1287486

Abstract

References

  • Antonopoulos, A. M. (2017). Mastering Bitcoin: Programming the open blockchain: " O’Reilly Media, Inc.". google scholar
  • Arias-Oliva, M., de Andres-Sanchez, J., & Pelegrin-Borondo, J. (2021). Fuzzy set qualitative comparative analysis of factors influencing the use of cryptocurrencies in Spanish households. Mathematics, 9, (4), 324. google scholar
  • Ballis, A., & Drakos, K. (2020). Testing for herding in the cryptocurrency market. Finance Research Letters, 33, 101-210. google scholar
  • Banerjee, A. V. (1992). A simple model of herd behavior. The quarterly journal of economics, 107(3), 797817. google scholar
  • Bikhchandani, S., & Sharma, S. (2000). Herd behavior in financial markets. IMF Staff papers, 47(3), 279-310. google scholar
  • Bloom, N., Floetotto, M., Jaimovich, N., Saporta-Eksten, I., & Terry, S. J. (2018). Really uncertain business cycles. Econometrica, 86(3), 1031-1065. google scholar
  • Bouri, E., Gupta, R., & Roubaud, D. (2019). Herding behaviour in cryptocurrencies. Finance Research Letters, 29, 216-221. google scholar
  • 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. google scholar
  • Chen, M.-H., Jang, S. S., & Kim, W. G. (2007). The impact of the SARS outbreak on Taiwanese hotel stock performance: An event-study approach. International journal of hospitality management, 26(1), 200-212. google scholar
  • Chiang, T. C., & Zheng, D. (2010). An empirical analysis of herd behavior in global stock markets. Journal of Banking & Finance, 34(8), 1911-1921. google scholar
  • 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. Retrieved from https://doi.org/10.2469/faj.v51.n4.1918 google scholar
  • 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. google scholar
  • Demir, E., Bilgin, M. H., Karabulut, G., & Doker, A. C. (2020). The relationship between cryptocurrencies and COVID-19 pandemic. Eurasian Economic Review, 10, 349-360. google scholar
  • Demirer, R., Lee, H.-T., & Lien, D. (2015). Does the stock market drive herd behavior in commodity futures markets? International review of financial analysis, 39, 32-44. google scholar
  • Fasanya, I. O., Oyewole, O., Adekoya, O. B., & Odei-Mensah, J. (2021). Dynamic spillovers and connectedness between COVID-19 pandemic and global foreign exchange markets. Economic Research-Ekonomska Istrazivanja, 34(1), 2059-2084. google scholar
  • Feng, G.-F., Yang, H.-C., Gong, Q., & Chang, C.-P. (2021). What is the exchange rate volatility response to COVID-19 and government interventions? Economic analysis and policy, 69, 705-719. google scholar
  • Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. The journal of finance, 57(5), 2223-2261. google scholar
  • Galariotis, E. C., Rong, W., & Spyrou, S. I. (2015). Herding on fundamental information: A comparative study. Journal of Banking & Finance, 50, 589-598. google scholar
  • Goforth, C. (2019). The Lawyer’s Cryptionary: a resource for talking to clients about crypto-transactions. Campbell L. Rev., 41, 47. google scholar
  • Haacker, M. (2004). The impact of HIV/AIDS on government finance and public services. The macroeconomics of HIV/AIDS, 2002, 198-258. google scholar
  • 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. google scholar
  • Hoffman, S. J., & Silverberg, S. L. (2018). Delays in global disease outbreak responses: lessons from H1N1, Ebola, and Zika. American journal of public health, 108(3), 329-333. google scholar
  • Hwang, S., & Salmon, M. (2004). Market stress and herding. Journal of Empirical Finance, 11(4), 585-616. google scholar
  • Iqbal, N., Fareed, Z., Wan, G., & Shahzad, F. (2021). Asymmetric nexus between COVID-19 outbreak in the world and cryptocurrency market. International review of financial analysis, 73, 101-613. google scholar
  • Javaira, Z., & Hassan, A. (2015). An examination of herding behavior in Pakistani stock market. International Journal of Emerging Markets. google scholar
  • Kabir, M. H., & Shakur, S. (2018). Regime-dependent herding behavior in Asian and Latin American stock markets. Pacific-Basin Finance Journal, 47, 60-78. Retrieved from https://doi.org/10.1016/j.pacfin.2017.12.002 google scholar
  • Kaiser, L., & Stöckl, S. (2020). Cryptocurrencies: Herding and the transfer currency. Finance Research Letters, 33, 101-214. google scholar
  • Kallinterakis, V., & Wang, Y. (2019). Do investors herd in cryptocurrencies-and why? Research in International Business and Finance, 50,240-245. google scholar
  • Kyriazis, N., Papadamou, S., & Corbet, S. (2020). A systematic review of the bubble dynamics of cryptocurrency prices. Research in International Business and Finance, 54, 101-254. google scholar
  • Lakonishok, J., Shleifer, A., & Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of financial economics, 32(1),23-43. google scholar
  • Lakshman, M., Basu, S., & Vaidyanathan, R. (2013). Market-wide herding and the impact of institutional investors in the Indian capital market. Journal of Emerging Market Finance, 12(2), 197-237. google scholar
  • Poyser, O. (2018). Herding behavior in cryptocurrency markets. arXiv preprint arXiv:1806.11348. google scholar
  • Sias, R. W. (2004). Institutional herding. The review of financial studies, 17(1), 165-206. google scholar
  • Smith, H. (2023). Bitcoin crash: what was behind the crypto collapse? Retrieved from https://www.thetimes.co.uk/money-mentor/article/ is-bitcoin-crash-coming/ google scholar
  • Stancel, D. (2015). Economic Consequences of Cryptocurrencies and Associated Decentralized Systems. Journal Of Economics, 25. google scholar
  • Tversky, A.,& Kahneman, D. (1989). Rational choice and the framing of decisions. Paper presented at the Multiple criteria decision making and risk analysis using microcomputers. google scholar
  • Vidal-Tomas, D. (2021). The entry and exit dynamics of the cryptocurrency market. Research in International Business and Finance, 58, 101-504. google scholar
  • 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, 75, 101-321. google scholar
There are 38 citations in total.

Details

Primary Language English
Subjects Economics
Journal Section Research Articles
Authors

Patrice Racine Dıallo 0000-0003-1800-1725

Bakhtiyar Garayev 0000-0002-5789-6368

Ozlem Sayılır 0000-0001-9598-3545

Muhammed Aslam Chelery Komath 0000-0002-5991-7476

Publication Date December 20, 2023
Submission Date April 25, 2023
Published in Issue Year 2023 Issue: 68

Cite

APA Dıallo, P. R., Garayev, B., Sayılır, O., Chelery Komath, M. A. (2023). Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes. Journal of Economy Culture and Society(68), 130-140. https://doi.org/10.26650/JECS2023-1287486
AMA Dıallo PR, Garayev B, Sayılır O, Chelery Komath MA. Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes. Journal of Economy Culture and Society. December 2023;(68):130-140. doi:10.26650/JECS2023-1287486
Chicago Dıallo, Patrice Racine, Bakhtiyar Garayev, Ozlem Sayılır, and Muhammed Aslam Chelery Komath. “Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes”. Journal of Economy Culture and Society, no. 68 (December 2023): 130-40. https://doi.org/10.26650/JECS2023-1287486.
EndNote Dıallo PR, Garayev B, Sayılır O, Chelery Komath MA (December 1, 2023) Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes. Journal of Economy Culture and Society 68 130–140.
IEEE P. R. Dıallo, B. Garayev, O. Sayılır, and M. A. Chelery Komath, “Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes”, Journal of Economy Culture and Society, no. 68, pp. 130–140, December 2023, doi: 10.26650/JECS2023-1287486.
ISNAD Dıallo, Patrice Racine et al. “Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes”. Journal of Economy Culture and Society 68 (December 2023), 130-140. https://doi.org/10.26650/JECS2023-1287486.
JAMA Dıallo PR, Garayev B, Sayılır O, Chelery Komath MA. Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes. Journal of Economy Culture and Society. 2023;:130–140.
MLA Dıallo, Patrice Racine et al. “Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes”. Journal of Economy Culture and Society, no. 68, 2023, pp. 130-4, doi:10.26650/JECS2023-1287486.
Vancouver Dıallo PR, Garayev B, Sayılır O, Chelery Komath MA. Dynamics of Herding Behavior in Cryptocurrency Markets Amid Market Crashes. Journal of Economy Culture and Society. 2023(68):130-4.
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