Study of Herding Behaviour in Indian Financial Market
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Date
2021
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Punjab Agricultural University, Ludhiana
Abstract
Herding in financial markets has been typically described as a behavioural tendency for an investor to follow the actions of others. Herding affects the risk and return models, stock prices, determines asset prices and exacerbates the volatility and liquidity in financial market. The present study was undertaken to explore the herding behaviour in Indian stock and commodity markets, Indian equity mutual funds and among individual investors. For satisfying the objective of the study three major stock and commodity exchanges of India: National Stock Exchange, Multi-Commodity Exchange and National Commodity and Derivatives Exchange were selected. Further, the major indices were selected from each exchange making the total sample of twelve indices. Secondary data for daily closing prices of respective stocks and commodities of selected indices were recorded for the period of ten years ranging from 1st January, 2008 to 31st December, 2017. For determining herding in mutual funds, top 29 large cap equity mutual funds and 28 small and mid cap equity mutual funds were selected. The monthly trade data and attributes of fund/fund manager were recorded from the monthly factsheets of these mutual funds for the period of six years ranging from 1st January, 2013 to 31st December, 2018. For exploring the herding behaviour among individual investors primary data was collected from 411 respondents using pre structured non-disguised questionnaire. Results based on secondary data indicate presence of herding beahviour in both Indian stock and commodity markets based on state space methodology. Further, the results reveal presence of herding in Indian equity mutual funds. The intensity of mutual fund herding is significantly higher in bullish market as compared to bearish market. Mutual fund herding has significant correlation with fund portfolio turnover. Results based on the primary data reveal that herding bias among individual investors differ significantly on the basis of income, investment experience, amount of investment and proportion of assets in other than risk free deposits. Herding has significant positive correlation with anchoring bias and significant negative correlation with overconfidence bias.
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Dewan, Palak (2021). Study of Herding Behaviour in Indian Financial Market (Unpublished Ph.D. Dissertation). Punjab Agricultural University, Ludhiana, Punjab, India.