Do investors herd with industries or markets? Evidence from Pakistan stock exchange

This study investigates investors' herd behavior at market and industry level in Pakistan stock exchange (PSX). The novel contribution of this study is the incorporation of stock trading volume to explore the herding behavior laterally with daily stock returns. Using daily observations of the stock trading volume and stock closing prices of 254 firms listed on PSX for the period January 2000 - December 2014. Our empirical results found stock trading volume is the more robust predictor of herding than stock returns by employing ordinary least square method for cross-sectional absolute deviation (CSAD). Findings under stock returns indicate herding in eight industries at the industry level and in only one industry at market level. However, stock trading volume significantly predicts herding for 5 out of 11 industries both at industry and market level. This study recommends investor to focus more on daily trading volume than daily stock returns to devise their trading strategies.