Do investors herd in emerging economies? Evidence from the Indian equity market

Abstract

PurposeThe purpose of this study is to empirically examine the presence of herding behavior of Indian investors using daily sample data drawn from the Standard and Poor's (S&P) Bombay Stock Exchange-500 Index over the period 2007–2018.Design/methodology/approachThe study employs the model proposed by Chang et al. (2000), taking stock return dispersion as a measure to capture herding. The empirical results demonstrate the absence of herding behavior in all market states, that is, normal, up and down market conditions for the overall period.FindingsContrastingly, the study found negative herding behavior, which underlines that individuals are taking the decision away from the market consensus. The subperiod analysis corroborates the negative herding behavior. The results remain invariant across large, mid and small-capitalization firms except in one year, that is, 2009 for small firms. While using liquidity and sentiment as variables to examine herding, the study finds some evidence of herding behavior for high market liquidity state and sentiment. The findings of negative herding shed new light on herding behavior in the Indian stock market.Originality/valueThis pattern of behavior may indicate irrationality of investor behavior and the presence of noise traders who mistrust market-wide information. Behavioral factors such as overconfidence may explain this pattern of behavior.

Behavioral Biases and their Influence on Investment Decision-Making: A Systematic Literature Review and Future Research Agenda

“…stated that most continental nations experienced a strong herding effect during the global financial crisis, and Nordic nations also experienced it during the Eurozone crisis Bekiros et al (2017). observed that under extreme market conditions, herding becomes highly pronounced Ansari and Ansari (2021). stated that herding is absent in all market conditions Demirer and Kutan (2006).…”