Abstract
The purpose of this study is to investigate the presence of herding effects at the Dar-es-Salaam Stock Exchange. It employs a dataset of daily closing prices and market capitalizations of companies composing the industrial and allied sector, and those covering banks, finance, and investment sector. The study used cross-sectional dispersion of stock return tests to examine the presence of herding for the two sectors. The findings provide evidence of herding in the banks, finance, and investment sector throughout the full-sample period, with the herding being driven mainly by large-capitalization stocks. Furthermore, the results indicate clear presence of herding asymmetries conditional on the performance of the market and on the market’s volatility. On the case of the industrial and allied sector, herding is found to be stronger on days with low volatility only. The economic implication of this evidence is that the observed correlated trading patterns for the banks, finance, and investment sector may undermine financial stability.
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