Volatility and Dynamic Herding in Energy Sector of Developed Markets During COVID-19: A Markov Regime-Switching Approach

This study examines a novel relationship between volatility and dynamic herding behavior during COVID-19 by examining the relationship of oil market volatility, Global volatility and Infectious disease equity market volatility with time-varying herding behavior in energy stock of Developed markets. Using country level data, this study observes that market switch between anti-herding to herding state during pandemic and all three volatility measures have significant impact on dynamic herding state under high dispersion regime. However, in low dispersion regime only global volatility has significant impact on time-varying herding behavior. This study suggests that the level of speculation in energy sector affect investor behavior; therefore, policy makers should monitor and model possible signals related to health crisis that can be transformed in to financial market crisis.