Central European Business Review 2025, 14(1):57-73 | DOI: 10.18267/j.cebr.375

Do Global Disruptive Events Induce Herding Behaviour during Upward and Downward Market Movements? The Evidence from Nordic and Baltic Stock Markets

Renata Legenzova ORCID...1, Gintarė Leckė ORCID...2, Justė Juknevičiūtė3
1 Vytautas Magnus University, Faculty of Economics and Management, Kaunas, Lithuania, renata.legenzova@vdu.lt (corresponding author)
2 Vytautas Magnus University, Faculty of Economics and Management, Kaunas, Lithuania, gintare.lecke@vdu.lt
3 Vytautas Magnus University, Faculty of Economics and Management, Kaunas, Lithuania, juste.jukneviciute@alumni.vdu.lt

Over the recent decades, the world has experienced several major disruptive events with far-reaching global impacts on societies, economies and financial systems. This study investigates the financial market reactions to one of the most recent global disruptive events, the COVID-19 pandemic, focusing on the role of investors' herding behaviour during uncertainty. While previous research has mainly explored this on Asian and American markets, our study addresses this gap in understanding Northern European reactions, particularly in rising and falling markets, and aims to explore the existence of herding during the COVID-19 pandemic and to further investigate its occurrence and intensity during the periods of upward and downward movements. It uses Nasdaq Nordic and Baltic daily stock data and employs the cross-sectional absolute deviation method to estimate the reaction of individual Nordic and Baltic stock markets. The results reveal that herding was observed on three out of four Nasdaq Nordic stock markets (Sweden, Denmark and Finland) and one out of three Nasdaq Baltic stock markets (Lithuania). This behaviour persisted throughout the entire COVID-19 period and during market downturns, with no herding observed during upward market movements. This study contributes novel insights into herding on Northern European stock markets, highlighting distinct investor responses to the same global disruption and emphasizing the likelihood of herding during market downturns due to fear and uncertainty. Additionally, the research indicates more pronounced herding behaviour in developed rather than frontier stock markets, suggesting that during global disruptive events, smaller and less liquid stock markets might react more rationally, although more research is needed.
Implications for Central European audience: Acknowledging herding behaviour during global disruptive events is relevant for both investors and policymakers. Investors in Central and Eastern European countries can benefit from their awareness of herding behaviour, especially during market downturns, by taking advantage of mispriced assets. Moreover, understanding the psychological biases driving herding can promote more rational decision-making, enabling investors to resist panic selling. Meanwhile, policymakers can implement measures to promote market rationality, such as investor education programmes, aimed at building investors’ cognitive resilience and understanding of portfolio management strategies during turbulent times. Investors’ ability to recognize and mitigate the effects of herding behaviour should enhance their rationality and promote more efficient financial markets.

Keywords: herding; market movements; global disruptive event; COVID-19; CSAD
JEL classification: G10, G14, G41

Received: February 16, 2024; Revised: May 2, 2024; Accepted: May 12, 2024; Prepublished online: July 25, 2024; Published: March 28, 2025  Show citation

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Legenzova, R., Leck&#, G., & Juknevičiūtė, J. (2025). Do Global Disruptive Events Induce Herding Behaviour during Upward and Downward Market Movements? The Evidence from Nordic and Baltic Stock Markets. Central European Business Review, 14(1), 57-73. doi: 10.18267/j.cebr.375
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