Herd behavior and contagion effects of the COVID-19

This work uses structural change tests and the dynamic monitoring method through a new approach to verify whether an exogenous and unexpected event such as the COVID 19 pandemic crisis causes herd behavior and contagion effects. We use 12 indexes of the main world stock markets in daily frequency from 01/02/2019 to 01/22/2021. Initially, structural changes in returns and their volatility apparently had no relationship with the number of cases or deaths from the pandemic. However, between 3 and 13 March this situation changes. Structural breaks, controlled by the market comovement and occurring sequentially, provide evidence of contagion. The statistically significant increase in the correlation between individual and market returns indicates herd behavior in most cases analyzed.