Sentimental Herding in Stock Market: Evidence from India

Abstract

The present study examines herd behaviour in the Indian equity market using daily prices of 11 broad market indices, 12 sectoral indices, 16 strategic indices and 11 thematic indices from 1 January 2016 to 31 March 2022. For examining herd behaviour, daily returns, overnight returns, intraday spread, absolute market return and squared market return are calculated. Nifty 500 is used as a proxy index for the whole market. The regression models suggested by Christie and Huang (1995) and Chang et al. (2000) are used to calculate Cross-Sectional Standard Deviation (CSSD) and Cross-Sectional Absolute Deviation (CSAD) respectively, which measure the equity return dispersions. It is observed that herding exists in the Indian equity market when we calculate return dispersions using intraday spread. However, no herd presence is found when return dispersions are calculated through daily return, overnight return, absolute market return and squared market return. These results may be useful for investors, policy makers and regulatory bodies. Investors might design their investment strategy while making investment decision. Regulators might be able to formulate their policies to ensure market efficiency in the Indian equity market.