Bond market investor herding: Evidence from the European financial crisis |
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| Institution: | 1. Audencia Nantes School of Management, Centre for Financial and Risk Management, Nantes, France;2. Athens University of Economics & Business, Athens, Greece;1. Centre of Planning and Economic Research and Hellenic Open University, 11, Amerikis str. 106 72 Athens, Greece;2. Kent Business School, University of Kent, Parkwood Road, Canterbury, Kent, CT2 7PE, UK;3. Durham University Business School, Mill Hill Lane, Durham DH1 3LB, UK;1. Department of Economics, Westfälische Wilhelms-University Münster, Am Stadtgraben 9, 48143 Münster, Germany;2. School of Business & Economics, Wilfrid Laurier University and Viessmann European Research Centre, 75 University Avenue West, Waterloo, Ontario, N2L 3C5, Canada |
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| Abstract: | During the recent financial crisis, numerous EU officials, market participants and the media suggested that irrational herding was a key factor for the financial turmoil and the soaring yield spreads. In this paper we test for evidence of herd behavior in European government bond prices and, overall, we find no evidence of investor herding either before or after the EU crisis. We do find, however, in an original contribution to the bond market literature, strong evidence that during the EU crisis period, macroeconomic information announcements induced bond market investor herding; a finding that confirms the notion of ‘spurious’ herding proposed by Bikhchandani and Sharma (2001) for bond markets. Further tests reinforce this finding and also indicate the existence of herding spill-over effects. |
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