Herding on Fundamental and Nonfundamental Information During Post-Pandemic Quantitative Tightening Period : Evidence from the U.S. Banks

Recent cascade of bank failures in the U.S. draws attention to investor behavior. In this study, we investigate herding behavior of investors in U.S. bank stocks during the pandemic quantitative easing (QE) and post-pandemic quantitative tightening (QT) periods. We find evidence on nonfundamental herding bias in bank stocks, including large and stress-tested banks and small and non-stress-tested banks during post-pandemic QT period in which bank fundamentals already started to deteriorate. This situation could have contributed to the value irrelevance of bank fundamental information in stock prices. Our results do not suggest herding on bank fundamental information that could have supported market discipline and financial stability during QT period before the regional banking crisis. Also, nonfundamental herding shocks received by relatively small and non-stress-tested banks are persistent and can flow to the large and stress-tested banks. Our results have important implications for regulators, policymakers, and investors