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A note on the empirical test of herding: a threshold regression approach

Saumitra, Bhaduri (2012): A note on the empirical test of herding: a threshold regression approach.

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Abstract

The paper aims at investigating herding behaviour in equity market by applying an alternative econometric methodology. The paper applies the threshold test developed by Hansen [2000] to standard herding model in order to capture a non-linear effect of extreme market movement on the trading behaviour of the participants. Using the econometric model with threshold effect, the paper finds little evidence for market-wide herding for the Indian equity market. Even in the extreme market conditions, participants appear to discriminate between different securities, as predicted by the rational asset pricing paradigm.

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