Investor Behaviour and Herding: Evidence from the National Stock Exchange in India

Abstract

The article examines the presence of herd behaviour in the emerging Indian stock market. Using daily data of S&P CNX Nifty 50 index of the National Stock Exchange over 1997–2012 and by employing Kalman filter, we investigate for the presence of herding. The article finds that the investors in the Indian market show significant herding behaviour. The presence of herding is robust after accounting for time-varying state variables that capture market volatility and market direction. Herding shows significant movements and persistence in both bull and bear markets and it seems to increase in bear market conditions. JEL Classification: C02, C21, G11, G14

Herding behaviour in an emerging market: Evidence from the Moscow Exchange

“…In contrast to other emerging markets (Tan et al, 2008;Chang et al, 2000;Chiang & Zheng, 2010;Poshakwale & Mandal, 2014;Pochea & Pece, 2015), Russia's economy seems to be an exceptionoverall, we do not find evidence of herding formation. Investors at the Russian stock market, despite of being in a development stage, exhibit the same herding behaviour as investors at the world's largest and most liquid markets such as the US or the UK (Chang et al, 2000;Chiang & Zheng, 2010;Galariotis et al, 2015).…”

“…Although evidence of herding is mixed, investors in emerging markets exhibit more herding behaviour than investors in developed markets (see Section 2). In contrast to other less developed markets (Chang et al, 2000;Chiang & Zheng, 2010;Tan et al, 2008;Poshakwale & Mandal, 2014;Pochea & Pece, 2015), Russia's emerging economy seems to be an exceptionoverall, we do not find evidence of herding formation. Thus, in the sample period the Russian stock market shares the same characteristics as the world's largest and most profound financial markets, such as the US and the UK, where investors exhibit herding behaviour only occasionally (Chang et al, 2000;Chiang & Zheng, 2010;Galariotis et al, 2015).…”

“…Demirer et al (2010) conclude that investors exhibit no herding behaviour in China, while Tan et al (2008) report evidence of herd behaviour for Chinese dual-listed stocks. In India, Garg & Jindhal (2014) find no evidence of herding during 2000-2012, while Poshakwale & Mandal (2014) report about herding behaviour during 1997-2012. Chiang & Zheng (2010) carry out a comprehensive study of herding on the sample of 18 advanced and emerging economies all over the world.…”

Herding Behaviour in Investment Decision Making: A Review

“…There have been only some studies conducted in respect to the Indian market. Some of the important studies that signify the incidence of market wide herding in India in different periods and phases of the stock market are [13,18,19]. Contrastingly, there have been studies that indicate the absence of herding in Indian stock market.…”

Does herding exist in lottery stocks? Evidence from the Indian stock market

“…These studies capture herding behaviour based on different market states. Existing studies in the Indian equity market reported absence of herding behaviour for normal stocks (non-lottery types) under different market conditions (extreme upper tail and lower tail, up and down markets) (Lakshman et al, 2011;Lao and Singh, 2011;Saumitra and Sidharth, 2012;Patro and Kanagaraj, 2012;Prosad et al, 2012;Garg and Gulati, 2013;Poshakwale and Mandal, 2014). One of the probable reasons why these studies didn't detect the herding behaviour is that it may be confined in a particular sub-set of the stocks instead of the overall market (Fama and French, 2008;Aziz and Ansari, 2017).…”