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Herd Behaviour: How Decisive is the Noise in the NSE and BSE Stock Markets?

International Journal of Financial Management

Volume 6 Issue 1

Published: 2016
Author(s) Name: Paritosh Chandra Sinha | Author(s) Affiliation: Asst.Prof. in Comm., Rabindra Mahavidyalaya (Affiliated to The Univ. of Burdwan), West Bengal, India
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Abstract

Do investors in the stock markets act/react on true information or noise? Do they believe on their own information or simply herd? The study seeks to explore these typical research queries from the behavioral finance perspectives. In particular, it develops a new theory of herding behavior and extends the models of Banerjee (1992) and Bikhchandani, Hirshleifer, and Welch (1992). The study also empirically tests the same on the Indian context with the high frequency intraday trading data for the real trade-time or time-stamp, trade-volume, and trade-price of ten sample scripts listed for their trading in both markets - the Bombay Stock Exchange (BSE) and the National stock Exchange (NSE). The study contributes to the literature with original findings. It shows that investors in the two Indian stock markets show crowd of positive and negative herding as well significantly and there is huge noise along with information in the markets equilibrium pricing mechanism.

Keywords: Equilibrium Pricing Mechanism, Behavioral Finance, Herding Behavior, Indian Stock Markets, Noise Trading, Intra-day Trading

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