Turning with the tide

Abstract: This paper explores the presence of herding behaviour in the Nordic stock markets, i.e. the tendency of investors to mimic each other and follow the herd whilst disregarding their own beliefs and abilities to make rational investment decisions. We examine this effect during multiple global financial crises over the last 50 years to assess how both endogenous and exogenous shocks impact herding behaviour. Further, we analyse differences in herding behaviour between times of growth and recessions in the Nordic stock exchanges and show to what extent herding is affected by macroeconomic factors. We find that herding is detected within all five Nordic countries except for Norway, and that herding is more prominent during bearish days on the stock markets. Additionally, we conclude that on an international level an exogenous shock generates more consistent support for herding, but specific endogenous shocks can to a greater extent create herding within a single country. Controversially, we do not find sufficient support to assess whether herding is more likely to exist in periods preceding, during, or succeeding a crisis, however, herding is recorded consistently during longer periods in-between large endogenous shocks in the financial markets.