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Herding in the Banking Sector of Indian Stock Market: An Empirical Study of BankNifty

Journal of Commerce and Accounting Research

Volume 7 Issue 2

Published: 2018
Author(s) Name: Kiran Sharma | Author(s) Affiliation: Research Scholar, University Business School, Panjab University, Chandigarh, India.
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Abstract

This study examines the herding amongst the investors and the contributors of market in the banking sector of Indian stock market. Examine the herding specifically from the sectoral index (bank) makes this study different from the previous studies as all the studies covered the multisectoral index in an emerging economy. The herding in the banking sector of Indian stock market has been examined by using the methodologies of Christie & Huang (1995) based on Cross-sectional standard deviation (CSSD) and Chang, Cheng and Khoranna (2000) based on Cross-sectional absolute deviation (CSAD). To analyse the data, closing values of CNX BANKNIFTY index and its component securities has been collected for a period of 7 years ranging April 2010 to Oct 2017 from the PROWESS database. Auto-correlation and heteroskedastcity is also checked for the error terms and GARCH (1, 1) model is used to correct the problem of heteroskedastcity. The present study shows no specific affirmation of herding in the banking sector of Indian stock market. An in-depth analysis aimed at measuring herding patterns in bullish and bearish intervals too shows an absence of herding in the banking sector. Herding is also not found in the extreme price movements except in 99% criterion during the extreme down market. So, mild herding is there in the extreme down market situation only. For making better investment strategies and regulations for market, the consequences of the study have meaningful proposition for investors and policy makers.

Keywords: Herding, CNX BANKNIFTY, Cross-Sectional Absolute Deviation

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