Abstract
This study examines herding behavior in the Pakistani Stock Market under different market conditions, focusing on the Ramadan effect and Crisis period by using data from 2004 to 2014. Two regression models of Christie and Huang (Financ Analysts J 51:31–37, 1995) and Chang et al., (J Bank Finance 24:1651–1679, 2000) are used for herding estimations. Results based on daily stock data reveal that there is an absence of herding behavior during rising (up) and falling (down) market as well as during high and low volatility in market. While herding behavior is detected during low trading volume days. Yearly analysis shows that herding existed during 2005, 2006 and 2007, while it is not evident during rest of the period. However, herding behavior is not detected during Ramadan. Furthermore, during financial crisis of 2007–08, Pakistani Stock Market exhibits herding behavior due to higher uncertainty and information asymmetry.
Highlights
In conventional finance, nature of human being is assumed to be rational and rational individual takes decision on the basis of reason or logic
Olsen (1996) argue that it’s difficult to forecast in presence of herding behavior, as stock prices do not reflect their fundamental values in presence of herding behavior
This study examines the presence of herding behavior during Ramadan days in stock market of Pakistan
Summary
Nature of human being is assumed to be rational and rational individual takes decision on the basis of reason or logic. This study examines herding in the Pakistani Stock Exchange under different market conditions, focusing on the Ramadan effect and Crisis period. Ramadan prompts the feelings of solidarity and social identity, which leads toward the increases in investors’ optimism; and it effects their investment decisions Motivating by this evidence, this study examines the herding behavior during Month of Ramadan in stock market of Muslim country of Pakistan. Various types of herding evidences exist during crisis in different markets of the world Motivating by this evidence, this study examines the herding behavior in stock market of Pakistan during financial crisis of 2008. That’s why, this study will detect the herding behavior in stock market of Pakistan during Ramadan and Financial crisis of 2008
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