Do Indian investors also follow the pied piper? A case for pre- and post-financial crisis

Abstract

The phenomenon of market-wide herding emerges when investors choose to ignore firm-specific information and instead decide to follow the market. This paper explores the presence of herding behaviour in the Indian stock market by implementing cross-sectional absolute deviation technique. The study also compares the presence of herding behaviour in both pre- and post-crisis periods. The findings reveal strong evidence of herding behaviour during extreme market upturn while anti-herding tendencies dominated at times of extreme downturn. Moreover, a change has been observed in the herding behaviour over time. During the pre-crisis period, there was anti-herding for the upward movement, but herding has been observed for the downward movement. It may be due to ambiguity created in the market during such reversals. The post-crisis period exhibits strong evidence for herding during upturns. Positive outlook of investors towards the Indian market leads to a speedy recovery after a financial crisis. Contrary to popular belief, anti-herding has dominated during the period of financial crisis.