Revisiting Herding Behavior on the Bucharest Stock Exchange

This paper investigates herding behavior within the Romanian capital market. For this purpose, we collected data from June 2017 to November 2022, a period characterized by turmoil and uncertainty (caused by the beginning of the COVID-19 pandemic and the Russian invasion of Ukraine). Subsequently, we computed the cross-sectional absolute deviation of returns and we employed regression analysis. The results of our study confirm the existence of herding in the Romanian capital market over the entire period of our analysis. Nevertheless, while examining herding across various market states (such as periods of low and high volatility, as well as upward and downward markets), we failed to uncover any indications of herding behavior. To further pinpoint specific periods of interest, we applied the Zivot Andrews test and identified 25th of November 2021, as a significant turning point. Our findings confirm the presence of herding solely during the initial sub-period from June 2017 to November 2021. These findings may be linked to potential market inefficiencies, implying that investors could potentially develop profitable trading strategies in response.