Herding Behavior During the COVID-19 Pandemic and the Disposition Effect Situation in the Stock Exchange of Thailand

Abstract

The disposition effect is the tendency of investors to sell winning stocks and hold losing stocks and the herding behavior is an investment behavior in a group of investors who trade in the same direction. Both are regarded as irrational investment behaviors. This research examines the herding behavior in the Stock Exchange of Thailand during the COVID-19 pandemic and the disposition effect situation. We used daily data from January 2011 to December 2020 of complete observed stocks in the Stock Exchange of Thailand (SET). We modified the average holding period following Atkins and Dyl (Journal of Finance 52(1):309–325, 1997 [5]) and adapted the method for investigating the disposition effect after Visaltanachoti et al. (Applied Financial Economics 17(15):1265–1274, 2007 [45]). Then we constructed the dummy variable to represent the month in which the disposition effect took place in the market. After that, we tested the existence of the herding behavior during the COVID-19 pandemic and when the disposition effect was occurring. The herding behavior was tested following Yao et al. (International Review of Economics & Finance 29:12–29, 2014 [48]) and Filip et al. (Procedia Economics and Finance 32:307–315, 2015 [19]) using the cross-sectional absolute deviation (CSAD). The results reveal the herding behavior to occur during the disposition effect situation but not during the COVID-19 pandemic.