Investor herding during COVID-19: Evidence from the South African Exchange Traded Fund market

The volatility of financial markets has been exacerbated by the recent outbreak of the COVID-19 pandemic. During periods of increased market volatility, investors tend to exhibit herd behaviour. However, investor herd behaviour may result in suboptimal investment decisions and market anomalies. Given the rising popularity of Exchange Traded Funds (ETFs), the objective of this study is to investigate whether the COVID-19 pandemic has induced investor herd behaviour in the South African ETF market. To achieve the objective of this study, ETFs trading on the Johannesburg Stock Exchange (JSE) are analyzed from March 4, 2019 to August 14, 2020. The results of this study indicate that investor herd behaviour is not present in the South African ETF market during the full sample period. The Chow breakpoint test confirms that there is indeed a structural break on March 5, 2020 - the date on which South Africa confirmed its first COVID-19 case. However, the subperiod analysis reveals that herd behaviour is not present in the South African ETF market before and after South Africa confirmed its first COVID-19 case. Therefore, this study concludes that the COVID-19 pandemic and its related market volatility has not induced herd behaviour in the South African ETF market. These findings suggest that ETF investors are not influenced by the herd bias and, therefore, this finding could be an indication that ETF traders make informed trading decisions that are rational.