Herding behavior in French equity markets: a comparative analysis of SMEs and large-cap firms before and during the COVID-19 crisis

Purpose This study examines herding behavior in French equity markets, focusing on whether heightened volatility and uncertainty affect small and medium-sized enterprises (SMEs) more than large-cap firms during COVID-19. It investigates whether SMEs’ pronounced information asymmetries and lower liquidity exacerbate herding trends. Design/methodology/approach The analysis uses daily stock data from January 2017 to April 2021. By employing the Cross-Sectional Absolute Deviation (CSAD) model, the study isolates herding tendencies before and after the onset of COVID-19. Additional sub-sample tests compare up versus down markets in various liquidity conditions, while a rolling-window estimation shows how herding evolves over time. Findings Results indicate that herding intensifies during the pandemic period, with SMEs exhibiting stronger mimicry than large-cap firms. Factors such as limited liquidity, opacity and negative market sentiment amplify collective trading behaviors in SMEs. The data further show asymmetrical herding on down-market days, suggesting a flight-to-safety mentality among investors under crisis conditions. Originality/value By contrasting SMEs and large-cap firms operating within the same national market during a global crisis. It emphasizes that the vulnerabilities inherent in SMEs can exacerbate systemic risks, thereby offering valuable insights for policymakers and market participants aiming to mitigate the detrimental effects of collective trading.