Herding Dynamics in the Indian Stock Market: Empirical Evidence from Quantitative Models

Abstract

The rapid expansion of the Indian stock market in recent decades has spurred extensive research into investor behavior, particularly focusing on trading and investment strategies. Among various psychological biases influencing investor decisions, herding behavior has received significant academic attention. This study empirically examines the presence of herding dynamics in the Indian equity market using a modified Cross-Sectional Absolute Deviation (CSAD) model, enhancing robustness and validity. The investigation explores herding tendencies across different market phases—positive, negative, extreme positive, and extreme negative returns—as well as during structural breakpoints and varying trade volume conditions. The findings suggest that, while investors generally exhibit rational behavior across most market conditions, evidence of herding emerges specifically during certain structural breakpoints and periods of high trading volume. These results underscore the conditional nature of herding in the Indian stock market and offer insights for policymakers, investors, and analysts seeking to understand collective behavior in financial markets.