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Applying an alternative test of herding behavior: a case study of the Indian stock market

Saumitra, Bhaduri and Sidharth, Mahapatra (2012): Applying an alternative test of herding behavior: a case study of the Indian stock market.

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Abstract

The paper presents an alternative approach to test the herding behavior in the Indian equity market using symmetric properties of the cross sectional return distribution instead of the traditional standard deviation of the portfolio-based approach. Using the proposed approach, we find evidence of herding in the Indian market during the sample period. We also observe pronounced herding during the 2007 crash in the Indian equity market. Finally, we also observe that the rate of increase in security return dispersion as a function of the aggregate market return is lower in up market, relative to down market days, which stands contrary to the directional asymmetry documented by McQueen, Pinegar, and Thorley (1996).

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