Investor Herding and Stock Price Volatility in the Electric Vehicle Industry: An Empirical Study on Tesla and BYD

It is common for investors irrational decisions, driven by their herd behavior, to influence the stock prices of companies in the electric vehicle (EV) industry. However, investors are usually regarded as rational decision makers, and few scholars have considered this kind of irrational behavior. Thus, the effect of herd behavior remains unknown. This study, using two representative companies, Tesla and BYD, as case studies, aims to determine the impact of the herd behavior of investors on EV companies stock prices. The Cross-Sectional Absolute Deviation (CSAD) model and descriptive analysis are applied in order to sort out events that lead to the herd behavior of investors and figure out the trend of changes in stock prices following these significant events. The research findings indicate that although the emergence of herd behavior among investors does not directly cause greater volatility in stock prices over a longer period, it does lead to significant fluctuations in stock prices two days after major events of the EV company. This research fills the gap in the existing research concerning the impact of investor herd behavior on the stock prices of electric vehicle companies by using a more systematic method.