Crisis-induced herding and abnormal returns: Evidence from 13 shock events across nine IDX sectors (1997–2025)

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Type of the article: Research ArticleAbstractThis study aims to examine whether herding behavior intensifies during shock events and whether such crisis-induced herding leads to abnormal returns across nine IDX sectors over the 1997–2025 period. The study employs a quantitative event study approach using daily stock return data from 13 major global and domestic shock events representing nine industrial sectors listed on the Indonesia Stock Exchange. Herding behavior is measured using the cross-sectional absolute deviation model, while its effect on abnormal returns is analyzed through time series regressions incorporating interaction terms between herding indicators and shock event dummies, controlling for firm size, SMB, and HML factors. The results show strong asymmetry across market conditions and sectors. During bearish market phases, herding intensifies significantly in the agriculture, finance, and property real estate construction sectors and is associated with positive short-term abnormal returns, indicating crisis-driven market inefficiency. In contrast, during bullish market phases, most sectors exhibit anti-herding behavior, reflected in greater return dispersion and more selective investor decision making. The interaction between herding behavior and shock events is positive and statistically significant in most sectors, with the strongest effects observed during the 1997–1998 Asian Financial Crisis, the 2008 Global Financial Crisis, and the 2020 COVID-19 pandemic. Overall, the findings indicate that the Indonesian capital market remains in a transitional stage toward full efficiency, where psychological factors and information asymmetry continue to influence price formation during periods of extreme uncertainty.