Evidence of Herding in Indian Stock Market during Chinese Stock Market Turbulence: An Empirical Analysis

Abstract

Behavioral researchers claim that investors are compelled by their personal beliefs and opinions and are inclined to make cognitive errors. These errors can lead to market inefficiencies and can get predictable in the form of biases like cognitive bias and emotional bias which lead to many speculative bubbles like the dot-com bubble, subprime mortgage and credit crisis which led to a bubble burst in 2007. These gave rise to a new discipline named behavioural finance which explains how the cognitive errors and emotions of investors influences their decision making process. Out of all biases prevailing in the Indian Capital market, Herding is considered to be the most common behavior biases found among investors. The present study focuses on investigating the presence of herd behavior in the Indian Capital market during the Chinese Stock Market Turbulence. BSE 500 index data has been used in the analysis and the entire data period of 2013-2019, is classified into three phases pre-crisis(13-14), during crisis(15-16), post – crisis(17-19).CSSD and CSAD regression models have been used in the analysis. It was found that there is no evidence of herding in the Indian Stock market during pre-crisis, during crisis and post crisis of the Chinese Stock market Turbulence.