Herding behavior by socially responsible investors during the COVID-19 pandemic

Abstract

PurposeThis study aims to examine the herding behavior of socially responsible exchange traded funds (SR ETFs) in comparison to conventional ETFs during the COVID-19 pandemic.Design/methodology/approachTo test for herding behavior, the authors use the cross-sectional absolute deviation and a quadratic market model.FindingsDuring the pandemic, investments in socially responsible financial products grew rapidly. And investors in the popular SR ETFs herd during this special period, while holders of conventional ETFs did not.Practical implicationsInvestors in socially responsible investments must do their own research and make their own financial decisions, rather than follow the crowd, especially during extreme events like the COVID-19 pandemic.Originality/valueThe evidence shows that, during the pandemic, socially responsible ETFs behaved in line with theoretical predictions of herding, that is, herding is more significant during extreme market conditions.