Herd Behavior in Stock Markets: a Nordic Study

Sammanfattning: In this paper, the investment behavior among market participants in four Nordic countries (Denmark, Finland, Norway and Sweden) is studied, more specifically with regard to their propensity to exhibit herd behavior. The approach of Chiang and Zheng (2010) is applied to detect market-wide herding during the time period 2001-2012. Significant evidence of local market-wide herding is found in Finland during both up-and down going market days. No evidence of local market-wide herding is found in Denmark, Norway or Sweden. Evidence of herding in Finland is found in the bear market of 2001 and the bull market of 2004 when the sample is divided into sub periods. In addition, significant evidence of herding across national borders is found. Evidence suggests that both Finland and Sweden herd around the US market. All Nordic countries are found to herd around the European market. This could indicate that geographical distance influence herding across national borders. This is further supported by the significant evidence that all the countries in this study herd around each other.