Short Term and Long Term Herding Prospects: Evidence from Pakistan Stock Exchange

Abstract

The present research intends to examine the herd behaviour of investors in the Pakistan Stock Exchange (PSX). Herd behaviour in stock market is sometimes based on fundamental information, which causes quick price adjustments to new information and leads to efficient markets. Still, sometimes it is not dependent on fundamental information and results in price instability. Herding can be a short term phenomenon, but sometimes a longer time span can provide favourable outcomes for the occurrence of herd behaviour. Considering these diverse views, intraday, daily, weekly, and monthly stock prices of 528 companies listed in the PSX have been used to calculate stock returns. Market-wide herd measure, i.e. CSAD, has been used to compute the herd behaviour. Data has been investigated for autocorrelation, heteroscedasticity, and stationarity issues. Findings revealed that herding did not exist in PSX, but some sectors showed this behaviour. Herd behaviour was more likely to exist at a daily level. The tendency of occurrence of the herding phenomenon gradually decreases at intraday and weekly levels. However, herding cannot be taken as a long term phenomenon as just a single sector was evidenced about its existence at the monthly level. Herding is an inherent phenomenon that is very difficult to eliminate from the stock market completely. However, knowledge and information sharing can guide investors to improve this behaviour Keywords: Herd Behaviour, Behavioural Finance, Return Dispersions, Pakistan Stock Exchange, CSAD

COVID and World Stock Markets: A Comprehensive Discussion

“…The rational attitude of investors restricts them from imitating the decisions of others. Investors get the basic facts and figures about the stock markets through their own efforts, resultantly the fear of avoiding future losses compel the investors to sell their stocks and the market shows bearish trend (Jabeen and Rizavi, 2021 ). The same has happened in the world's stock markets during the peak of pandemic.…”

“…The irrational aspect of investors forces them to follow the decision of other investors by setting aside their own information. In such context, investors have confidence on the decision of other investors as they feel that others may possess better information skills (Jabeen and Rizavi, 2021 ). As a result the panic market conditions lead investors to blindly follow the others to protect their investment and market also depicts the bearish trend, the one which has been seen during the COVID-19 outbreak.…”