Did Russia's Invasion of Ukraine Induce Herding Behavior in the Indian Stock Market?

Abstract

This study empirically examines the herding behavior of the Indian stock market investors during the heightened geopolitical tensions between Russia and Ukraine in 2022.


An intensified Russia-Ukraine geopolitical event window was constructed, and the high-frequency trading data (intraday) of the Nifty index was analyzed using Multifractal Detrended Fluctuation Analysis (MFDFA) to compute the 5th-order Hurst exponent (Hq (5)) that detects herding behavior.


The study's empirical results revealed the presence of profound herding behavior during the intensified Russia-Ukraine geopolitical event window. The study contributes to the existing literature on herding behavior by examining the impact of a geopolitical event on the Indian stock market. Additionally, the study utilizes MFDFA to compute Hurst exponents, a relatively new approach to detecting herding behavior in financial markets.


The findings of this study may assist investors and policymakers in understanding the impact of geopolitical events on financial markets and the potential for herding behavior among investors during times of heightened uncertainty. The study's results demonstrate the interconnectedness of global events and financial markets, highlighting the need for policymakers to consider the potential social and economic consequences of geopolitical events.

References

[1] Akhtaruzzaman, Md, Sabri Boubaker, Brian M. Lucey, and Ahmet Sensoy. 2021. “Is Gold a Hedge or a Safe-Haven Asset in the COVID–19 Crisis?” Economic Modelling 102 (June): 105588. DOI:https://doi.org/10.1016/j.econmod.2021.105588.
[2] Arin, K. Peren, Davide Ciferri, and Nicola Spagnolo. 2008. “The Price of Terror: The Effects of Terrorism on Stock Market Returns and Volatility.” Economics Letters 101 (3): 164–67. DOI:https://doi.org/10.1016/j.econlet.2008.07.007.
[3] Aslam, Faheem, Wahbeeah Mohti, and Paulo Ferreira. 2020. “Evidence of Intraday Multifractality in European Stock Markets during the Recent Coronavirus (Covid-19) Outbreak.” International Journal of Financial Studies 8 (31): 1–13. DOI: https://doi.org/10.3390/ijfs8020031.
[4] Balbaa, Muhammad, Mansur Eshov, and Nilufar Ismailova. 2022. “The Impacts of Russian-Ukrainian War on the Global Economy.” Advance Online Publication.
[5] Balcilar, Mehmet, Matteo Bonato, Riza Demirer, and Rangan Gupta. 2017. “PT.” Economic Systems. DOI:https://doi.org/10.1016/j.ecosys.2017.05.008.
[6] Barsky, Robert B, and Lutz Kilian. 2004. “Oil and the Macroeconomy Since the 1970s.” Journal of Economic Perspectives 18 (4): 115–34.
[7] Bharti, and Ashish Kumar. 2021. “Exploring Herding Behaviour in Indian Equity Market during COVID-19 Pandemic: Impact of Volatility and Government Response.” Millennial Asia, 1–19. DOI:https://doi.org/10.1177/09763996211020687.
[8] Białkowski, Jedrzej, Katrin Gottschalk, and Tomasz Piotr Wisniewski. 2008. “Stock Market Volatility around National Elections.” Journal of Banking and Finance 32 (9): 1941–53. DOI:https://doi.org/10.1016/j.jbankfin.2007.12.021.
[9] Boubaker, Sabri, John W. Goodell, Dharen Kumar Pandey, and Vineeta Kumari. 2022. “Heterogeneous Impacts of Wars on Global Equity Markets: Evidence from the Invasion of Ukraine.” Finance Research Letters 48 (May). DOI: https://doi.org/10.1016/j.frl.2022.102934.
[10] Bougatef, Khemaies, and Imen Nejah. 2023. “Does Russia Ukraine War Generate Herding Behavior in Moscow Exchange ?” Review of Behavioral Finance 2021. DOI: https://doi.org/10.1108/RBF-01-2023-0014.
[11] Chang, Eric C., Joseph W. Cheng, Ajay Khorana, Abhijit Dutta, Padmabati Gahan, Sangram Keshari Pana, Viktoria Dalko, et al. 2018. “The COVID-19 Pandemic and Herding Behaviour: Evidence from India’s Stock Market.” Review of Behavioral Finance 5 (1): 279–310. DOI: https://doi.org/10.1177/0976399620964635.
[12] Chen, Yi-Chang, Kai-Sheng Chen, Housen Wang, Chunxiu Qiu, and Xinyi Ma. 2018. “Non-Economic Events in China and Herding Behavior.” Advances in Social Science, Education and Humanities Research 184 (Icesem): 1243–46. DOI: https://doi.org/10.2991/icesem-18.2018.290.
[13] Cont, rama, and Jean-Philipe Bouchaud. 2000. “Herd Behavior and Aggregate Fluctuations in Financial Markets.” Macroeconomic Dynamics, 170–96. DOI: https://doi.org/10.1017/S1365100500015029
[14] Das, Debojyoti, M Kannadhasan, and Malay Bhattacharyya. 2019. “Do the Emerging Stock Markets React to International Economic Policy Uncertainty , Geopolitical Risk and Financial Stress Alike ?” North American Journal of Economics and Finance 48 (January): 1–19. DOI: https://doi.org/10.1016/j.najef.2019.01.008.
[15] Dhall, Rosy, and Bhanwar Singh. 2020. “The COVID-19 Pandemic and Herding Behaviour: Evidence from India’s Stock Market.” Millennial Asia. DOI: https://doi.org/10.1177/0976399620964635.
[16] Espinosa-Méndez, Christian, and Jose Arias. 2020a. “COVID-19 Effect on Herding Behaviour in European Capital Markets.” Finance Research Letters, no. September: 101787. DOI:https://doi.org/10.1016/j.frl.2020.101787.
[17] Espinosa-Méndez, Christian, and José Arias. 2020b. “Herding Behaviour in Asutralian Stock Market: Evidence on COVID-19 Effect.” Applied Economics Letters 28 (21): 1898–1901. DOI:https://doi.org/10.1080/13504851.2020.1854659.
[18] Fajgelbaum, Pablo, and Amit Khandelwal. 2021. “THE ECONOMIC IMPACTS OF THE US-CHINA TRADE WAR.” NBER Working Paper Series. DOI: https://doi.org/10.1146/annurev-economics-051420-110410.
[19] Fan, Rui, Oleksandr Talavera, and Vu Tran. 2020. “Social Media, Political Uncertainty, and Stock Markets.” Review of Quantitative Finance and Accounting 55 (3). DOI: https://doi.org/10.1007/s11156-020-00870-4.
[20] Ferreruela, Sandra, and Tania Mallor. 2021. “Herding in the Bad Times: The 2008 and COVID-19 Crises.” North American Journal of Economics and Finance 58 (August): 101531. DOI:https://doi.org/10.1016/j.najef.2021.101531.
[21] Ghosh, Bikramaditya, Kazouz Hayfa, Trina Saha, and Kumari Anisha. 2023. “Long Memory amidst Crisis : ASEAN Evidence Long Memory amidst Crisis : ASEAN Evidence.” Empirical Economics Letters, no. July. DOI: https://doi.org/10.5281/zenodo.8146746.
[22] Ghosh, Bikramaditya, and Emira Kozarevic. 2019. “Multifractal Analysis of Volatility for Detection of Herding and Bubble : Evidence from CNX Nifty HFT ‘ Multifractal Analysis of Volatility for Detection of Herding and Bubble : Evidence from CNX Nifty HFT .’” Investment Management and Financial Innovations 16 (September). DOI: https://doi.org/10.21511/imfi.16(3).2019.17.
[23] Ghosh, Bikramaditya, M. C. Krishna, Shrikanth Rao, Emira Kozarević, and Rahul Kumar Pandey. 2018. “Predictability and Herding of Bourse Volatility: An Econophysics Analogue.” Investment Management and Financial Innovations 15 (2): 317–26. DOI: https://doi.org/10.21511/imfi.15(2).2018.28.
[24] Ghosh, Bikramaditya, Corlise Le Roux, and Anjali Verma. 2020. “Investigation of the Fractal Footprint in Selected EURIBOR Panel Banks.” Banks and Bank Systems 15 (1): 185–98. DOI:https://doi.org/10.21511/bbs.15(1).2020.17.
[25] Ghosh, Bikramaditya, J. S. Saleema, Aniruddha Oak, K. S. Manu, and R. Sangeetha. 2020. “Long Memory Investigation during Demonetization in India.” Investment Management and Financial Innovations 17 (2): 297–307. DOI: https://doi.org/10.21511/imfi.17(2).2020.23.
[26] Gong, Pu, and Jun Dai. 2017. “Monetary Policy, Exchange Rate Fluctuation, and Herding Behavior in the Stock Market.” Journal of Business Research 76: 34–43. DOI: https://doi.org/10.1016/j.jbusres.2017.02.018.
[27] Gong, Weili, Silin Li, and Hongxin Yu. 2022. “Herding Behavior in China’s Stock Market under the Background of Implementation of the SHKSC Policy.” Discrete Dynamics in Nature and Society 2022. DOI:https://doi.org/10.1155/2022/7278023.
[28] Gopal, Suresh, and Jothi Munusamy. 2016. “Causal Relationship between Gold, Crude Oil & US Dollar Rates and S&P BSE 100 in India: An Experimental Study.” International Journal of Financial Management 6 (2). DOI: https://doi.org/10.26643/gis.v11i5.3414.
[29] Guidolin, Massimo, and Eliana la Ferrara. 2010. “The Economic Effects of Violent Conflict: Evidence from Asset Market Reactions.” Journal of Peace Research 47 (6): 671–84. DOI:https://doi.org/10.1177/0022343310381853.
[30] He, Yinghua, Ulf Nielsson, and Yonglei Wang. 2017. “Hurting without Hitting: The Economic Cost of Political Tension.” Journal of International Financial Markets, Institutions and Money 51: 106–24. DOI:https://doi.org/10.1016/j.intfin.2017.08.011.
[31] Huang, Jim Yuh, Joseph C.P. Shieh, and Yu Cheng Kao. 2016. “Starting Points for a New Researcher in Behavioral Finance.” International Journal of Managerial Finance 12 (1): 92–103. DOI:https://doi.org/10.1108/IJMF-05-2015-0111.
[32] Hudson, Robert, and Andrew Urquhart. 2014. “War and Stock Markets: The Effect of World War Two on the British Stock Market.” International Review of Financial Analysis 40: 166–77. DOI:https://doi.org/10.1016/j.irfa.2015.05.015.
[33] Hurst, Harold edwin. 1951. “Long-Term Storage Capacity of Reservoirs.” Transactions of the American Society of Civil Engineers 6: 770–799.
[34] Hwang, Soosung, and Mark Salmon. 2004. “Market Stress and Herding.” Journal of Empirical Finance 11 (4): 585–616. DOI: https://doi.org/10.1016/j.jempfin.2004.04.003.
[35] Ihlen, Espen A.F. 2012. “Introduction to Multifractal Detrended Fluctuation Analysis in Matlab.” Frontiers in Physiology 3 JUN (June): 1–19. DOI: https://doi.org/10.3389/fphys.2012.00141.
[36] Kantelhardt, Jan W., Stephan A. Zschiegner, Eva Koscielny-Bunde, Shlomo Havlin, Armin Bunde, and H. Eugene Stanley. 2002. “Multifractal Detrended Fluctuation Analysis of Nonstationary Time Series.” Physica A: Statistical Mechanics and Its Applications 316 (1–4): 87–114. DOI: 10.1016/S0378-4371(02)01383-3.
[37] Khan Tabassum, and G. Suresh. 2022. “Do All Shocks Produce Embedded Herding and Bubble? An Empirical Observation of the Indian Stock Market.” Investment Management and Financial Innovations 19 (3): 346–59. DOI: https://doi.org/10.21511/imfi.19(3).2022.29.
[38] Krishna T. A., and B. Suresha. 2021. “Do Geopolitical Tensions Instigate Mindless Following in Stock Markets? An Empirical Enquiry into the Indices of CNX Nifty HFT.” Investment Management and Financial Innovations 18 (2): 335–49. DOI: https://doi.org/10.21511/imfi.18(2).2021.27.
[39] Krishna T.A., and B.Suresha. 2022. “Intensified Geopolitical Conflicts and Herding Behavior: An Evidence from Selected Nifty Sectoral Indices during India-China Tensions in 2020.” Investment Management and Financial Innovations 19 (1): 300–312. DOI: https://doi.org/10.21511/imfi.19(1).2022.23.
[40] Kumar, Sanjeev, Reetika Jain, Faruk Balli, and Mabruk Billah. 2023. “Interconnectivity and Investment Strategies among Commodity Prices , Cryptocurrencies , and G-20 Capital Markets : A Comparative Analysis during COVID-19 and Russian-Ukraine War.” International Review of Economics and Finance 88 (April): 547–93. DOI: https://doi.org/10.1016/j.iref.2023.06.039.
[41] Kumar, Sunil, and Nivedita Deo. 2009. “Multifractal Properties of the Indian Financial Market.” Physica A: Statistical Mechanics and Its Applic ations 388 (8). DOI:https://doi.org/10.1016/j.physa.2008.12.017.
[42] Liu, Yang, Liyan Han, and Yang Xu. 2021. “The Impact of Geopolitical Uncertainty on Energy Volatility.” International Review of Financial Analysis 75 (March). DOI: https://doi.org/10.1016/j.irfa.2021.101743.
[43] Loang, Ooi Kok, and Zamri Ahmad. 2023. “Economic and Political Factors on Herding in Islamic GCC Stock Markets during COVID-19 Pandemic.” International Journal of Islamic and Middle Eastern Finance and Management. DOI: https://doi.org/10.1108/IMEFM-01-2022-0019
[44] Makololo, Prudence, and Yudhvir Seetharam. 2020. “The Effect of Economic Policy Uncertainty and Herding on Leverage: An Examination of the BRICS Countries.” Cogent Economics and Finance 8 (1). DOI:https://doi.org/10.1080/23322039.2020.1821482.
[45] Manela, Asaf, and Alan Moreira. 2017. “News Implied Volatility and Disaster Concerns.” Journal of Financial Economics 123 (1): 137–62. DOI: https://doi.org/10.1016/j.jfineco.2016.01.032.
[46] Mertzanis, Charilaos, and Noha Allam. 2018. “Political Instability and Herding Behaviour: Evidence from Egypt’s Stock Market.” Journal of Emerging Market Finance 17 (1): 29–59. DOI:https://doi.org/10.1177/0972652717748087.
[47] Naimy, Viviane, José María Montero, Rim El Khoury, and Nisrine Maalouf. 2020. “Market Volatility of the Three Most Powerful Military Countries during Their Intervention in the Syrian War.” Mathematics 8 (5): 1–21. DOI:https://doi.org/10.3390/MATH8050834.
[48] Petrov, Alexander, Elliot Hentov, and Fabrizio Zumbo. 2018. “How Does Geopolitics Affect Financial Markets?” https://bc.edu/matteo-iacoviello/gpr.htm#home.
[49] Plakandaras, Vasilios, Periklis Gogas, and Theophilos Papadimitriou. 2019. “The Effects of Geopolitical Uncertainty in Forecasting Financial Markets: A Machine Learning Approach.” Algorithms 12 (1). DOI:https://doi.org/10.3390/a12010001.
[50] Popescu, Marius, and Zhaojin Xu. 2018. “Mutual Fund Herding and Reputational Concerns.” Journal of Economics and Finance 42 (3): 550–65. DOI: https://doi.org/10.1007/s12197-017-9405-y.
[51] Ricciardi, Victor, and Helen K. Simon. 2000. “What Is Behavioral Finance?” DOI:https://doi.org/10.1002/9780470404324.hof002009.
[52] Schneider, Gerald, and Vera E. Troeger. 2006. “War and the World Economy: Stock Market Reactions to International Conflicts.” Journal of Conflict Resolution 50 (5): 623–45. DOI:https://doi.org/10.1177/0022002706290430.
[53] Selmi, Refk, and Jamal Bouoiyour. 2020. “Arab Geopolitics in Turmoil: Implications of Qatar-Gulf Crisis for Business.” International Economics 161: 100–119. DOI: https://doi.org/10.1016/j.inteco.2019.11.007.
[54] Sohag, Kazi, Rogneda Vasilyeva, Alina Urazbaeva, and Valentin Voytenkov. 2022. “Stock Market Synchronization: The Role of Geopolitical Risk.” Journal of Risk and Financial Management 15 (5). DOI:https://doi.org/10.3390/jrfm15050204.
[55] Soltani, Hassen, Mohamed Bilel Triki, Mohamed Ghandri, and Fouzi Tahar Abderzag. 2021. “Does Geopolitical Risk and Financial Development Matter for Economic Growth in MENA Countries?” Journal of International Studies 14 (1): 103–16. DOI: https://doi.org/10.14254/2071-8330.2021/14-1/7.
[56] Sornette, D. 2003. “Critical Market Crashes.” Physics Reports 378 (1): 1–98. DOI:https://doi.org/10.1016/S0370-1573(02)00634-8.
[57] Talbi, Dorra, Hasna Chaibi, and Aymen Maoueti. 2021. “Political Uncertainty, Financial Crises, and Stock Market Volatility: Evidence from MENA Region.” Journal of Public Affairs, no. November. DOI:https://doi.org/10.1002/pa.2783.
[58] BBC. 2023. “What Is Nato and How Is It Helping Ukraine?” BBC. 2023. https://www.bbc.com/news/world-europe-18023383.
[59] Business Insider. 2022. “As Russia Declares War on Ukraine, $177 Billion Wiped out from Indian Markets in the First Hour of Trade.” Business Insider, February 2022. https://www.businessinsider.in/stock-market/news/india-stock-market-down-sharply-as-russia-declares-war-on-ukraine/articleshow/89791440.cms#:~:text=hour of trade-,As Russia declares war on Ukraine%2C %24177 billion wiped out,the first hour of trade&text=S
[60] Business Standard. 2022. “Russia-Ukraine Crisis: NSE FMCG Index Hits 9-Month Low, Metal Firms Soar.” Business Standard, 2022. https://www.business-standard.com/article/markets/russia-ukraine-crisis-nse-fmcg-index-hits-9-month-low-metal-firms-soar-122030200060_1.html.
[61] Fortune India. 2022. “Russia-Ukraine War: Indian Stocks That Took a Beating.” Fortune India, 2022. https://www.fortuneindia.com/investing/russia-ukraine-war-indian-stocks-that-took-a-beating/107239.
[62] Middle East Business. 2022. “Revise down Indian Economy Growth Forecast for 2022 amid Russia-Ukraine Crisis.” Middle East Business, 2022. https://middleeast-business.com/revise-down-indian-economy-growth-forecast-for-2022-amid-russia-ukraine-crisis/.
[63] The Economic Times. 2022a. “All Fall down after Russia Uses Putin Option.” The Economic Times, 2022. https://economictimes.indiatimes.com/markets/stocks/news/all-fall-down-after-russia-uses-putin-option/articleshow/89813611.cms.
[64] The Economic Times 2022b. “China Stocks Close Lower as Russia Attacks Ukraine.” The Economic Times, 2022. https://economictimes.indiatimes.com/markets/stocks/news/china-stocks-close-lower-as-russia-attacks-ukraine/articleshow/89797125.cms.
[65] The Economic Times. 2022c. “Cloud over $500 Million Exports to Russia, CIS Countries.” The Economic Times, 2022. https://economictimes.indiatimes.com/news/economy/foreign-trade/cloud-over-500-million-exports-to-russia-cis-countries/articleshow/89881627.cms.
[66] The Economic Times. 2022d. “Wheat and Poultry Exports May Rise.” The Economic Times, 2022. https://economictimes.indiatimes.com/news/economy/foreign-trade/wheat-and-poultry-exports-may-rise/articleshow/89810400.cms.
[67] The Indian Express. 2023. “One Year of Russia-Ukraine War: The Impact on Indian Economy, Domestic Markets.” The Indian Express, 2023. https://indianexpress.com/article/business/economy/russia-ukraine-war-anniversary-indian-economy-domestic-markets-8462853/.
[68] Thompson, James R., and James R. Wilson. 2016. “Multifractal Detrended Fluctuation Analysis: Practical Applications to Financial Time Series.” Mathematics and Computers in Simulation 126: 63–88. DOI:https://doi.org/10.1016/j.matcom.2016.03.003.
Published
2023-12-20
How to Cite
KHAN, Tabassum; NATCHIMUTHU, Natchimuthu; TA, Krishna. Did Russia's Invasion of Ukraine Induce Herding Behavior in the Indian Stock Market?. Theoretical and Practical Research in Economic Fields, [S.l.], v. 14, n. 2, p. 484 - 498, dec. 2023. ISSN 2068-7710. Available at: <https://journals.aserspublishing.eu/tpref/article/view/8230>. Date accessed: 25 feb. 2024. doi: https://doi.org/10.14505/tpref.v14.2(28).24.