Analysis of Herd Behavior Using Quantile Regression: Evidence from Karachi Stock Exchange (KSE)

Abstract

The objectives of this paper are to explore the herd behavior in the Karachi Stock Exchange (KSE) by using Ordinary Least Square (OLS) and Quantile Regression analysis for normal as well as bullish (up) and bearish(down) market conditions. Greed stimulates people to make increasingly risky investments and therefore investors tend to follow one another blindly and ignore rational analysis. Herd behavior can be defined as when investor ignore available information and follow other investors during investment decision making. The results show the existence of herding in KSE during normal and both bullish and bearish markets. The analysis of herding is important because the mistakes of investors at the collective level may result in an inefficient pricing of assets. The results of this paper may help to avoid psychological traps linked with investing and are important for both investors and those regulatory institutions responsible for securing the strength of financial systems.