Empirical Study of Herd Behavior: The National Stock Exchange, India

The paper examines the presence of herd behavior in the S&P CNX Nifty 50 index of the National Stock Exchange of India, which arises out of the informational asymmetries found in the emerging markets around the globe. A price-based model with logarithmic crosssectional deviation employing Kalman fi lter is used to measure the presence of herding. This study exposes the severe effects of herd behavior on the Nifty index. We have found highly signifi cant herding in the Nifty index on a market-wide level during the period of 1997-2008. We also state that this type of behavior is decidedly exhibited by the market participants of the Nifty index, during the bull runs in the market and correspondingly less exhibited during the bear runs. Our work also examines the various events that took place during our sample period (May 1997-December 2008) and relates it to the course of herding in the Nifty index.