From COVID-19 herd immunity to investor herding in international stock markets: the role of government and regulatory restrictions

Renatas Kizys*, Panagiotis Tzouvanas, Michael Donadelli

*Corresponding author for this work

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We study if government response to the novel coronavirus COVID-19 pandemic can mitigate investor herding behaviour in international stock markets. Our empirical analysis is informed by daily stock market data from 72 countries from both developed and emerging economies in the first quarter of 2020. The government response to the COVID-19 outbreak is measured by means of the Oxford COVID-19 Government Response Tracker, where higher scores are associated with greater stringency. Three main findings are in order. First, results show evidence of investor herding in international stock markets. Second, we document that the Oxford Government Response Stringency Index mitigates investor herding behaviour, by way of reducing multidimensional uncertainty. Third, short-selling restrictions, temporarily imposed by the national and supranational regulatory authorities of the European Union, appear to exert a mitigating effect on herding. Finally, our results are robust to a range of model specifications.

Original languageEnglish
Article number101663
JournalInternational Review of Financial Analysis
Early online date15 Jan 2021
Publication statusPublished - 1 Mar 2021


  • COVID-19
  • international stock markets
  • investor herding
  • short-selling restrictions
  • Stringency Index

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