An Enquiry into the Existence of Herding in National Stock Exchange - CSAD Model Approach

Herding is an important behavioural anomaly for investors. It is the result of greed and fear of investors. Probability of herding is expected more in the crisis than the normal economic situation. Crisis period like depression, recession and economic slowdown instigate the fear of losing money. This fear forces the naïve investors to follow others and reap maximum benefit from their investment at the earliest. The present study tries to examine the existence of herding behaviour in the stock market during the economic slowdown period in India. For the purpose of the study, historical data has been retrieved from the official website of the National Stock Exchange. The Cross-Sectional Absolute Deviation (CSAD) model has been used to determine the presence or absence of herding in the NIFTY50 index. The paper found that herding is absent in the overall market during the study period. This study is beneficial for companies to understand the behaviour of their investors. It is also beneficial for the investors as they would be able to understand the pattern of investment and can protect themselves from becoming the prey of herding.