ESG, market microstructure, and herding behavior: Evidence from CSAD tests in Taiwan

This study examines how ESG transparency and market microstructure reform shape herding behavior in Taiwan’s equity markets. Using nonlinear CSAD models, we find that low-ESG firms exhibit stronger herding, especially in the OTC market and during market stress. The 2020 shift to continuous trading further amplifies herding among low-ESG firms. Return-dispersion decomposition shows that this convergence is mainly intentional and driven by noise trading. High-ESG firms display consistently weaker herding, underscoring the informational value of ESG. Overall, ESG transparency helps mitigate behaviorally induced co-movements and enhances market efficiency.