The Impact of Crisis on herding among Indian investors: An empirical study

Abstract

Herding occurs when the investors mimic the actions of others disregarding their own information or analysis. This anomaly becomes particularly noticeable during periods of crises, where anxiety and uncertainty dominate decision-making behaviour of investors. The present paper examines herding behaviour among investors in the Indian stock market during the overall period (2015-2024) as well as during various periods of crisis. It further explores the contagion effect between herding in USA and that in India. Using quantile regression model and cross-sectional absolute deviation (CSAD) technique, the paper studies daily data points of NIFTY 50 companies for a period of 10 years (1^st April,2015 to 31^st March,2024) to assess herding parameters. Dummy regression has been applied to compute herding during various crises namely: COVID-19, Russia-Ukraine war and Federal bank failure. The results suggest absence of herding during the overall period (2015-2024) which indicates that the market participants rely on their own knowledge and wisdom for financial decision making. However, this trend gets reversed during periods of turbulence, especially geo-political crisis where investors get together and behave collectively. Also, a strong contagion effect is observed between the market behaviour of US and Indian stock market.