Study herding in Indian stock market: A case of behavioural finance

Abstract

This paper examines herding at two levels: Macro Level (general presence of herding in a market comprised of all NSE small and mid-cap firms) and Micro Level (specific presence of herding in some of the shortlisted firms). Cross sectional standard deviation (CSAD) of stock method proposed in Chang et al. (2000) was used to test herding by regression at macro level for small-cap and mid-cap companies listed in NSE. 746 daily return data of 261 companies from 1 April 2009 to 31 March 2012 were examined by using regression method. While using CSAD approach for macro level, regression analysis could not give presence of herding behaviour in small and mid-cap companies. For Micro level analysis, same data were used to calculate average of the ratio of percentage change in monthly price to percentage change in aggregate monthly volume between high and low period to shortlist companies likely to exhibit herding behaviour. Firms with highly negative average value will tend to display herding behaviour. These companies were further filtered based on presence of peak in stock price movement from 1 April 2009 to 31 March 2012. At micro level, five companies were found which displayed herding behaviour. It can be argued that there might be herding behaviour in few companies which can be studied only at micro level while macro level analysis might not predict the herding behaviour.