Abstract
The paper aims to study the effect of herding in Indian equity market. The authors have tested the presence of herding using data from National Stock Exchange (NSE) and methodology as described in Christie and Huang (1995) and Chang, Cheng and Khorana (2000). Security return dispersion as a function of aggregate market return has been taken as a proxy for herd behavior. To test the presence of herding linear regression model and linear regression using quadratic functional form has been applied. Previous studies have reported the presence of herding in emerging Asian economies. However no evidence has been found in developed economies. The result of the study endorses the fact that Indian markets are efficient as no severe herding has been reported. However when presence of herding was tested for periods of market stress, it prevailed in bull phase.
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