Testing the Existence of Herd Instinct : An Empirical Study on BSE Sectoral Indices

Being a social creature, the herd instinct pushes individuals to imitate and ape the mental actions of surroundings. Similarly, the investors gravitate themselves with the behavioral pattern of environs which instigates the herding behavior. The research piece of work is exploring the prominent herding behavior amongst the 13 sectoral indices of Bombay Stock Exchange (BSE), starting from the period of January 2006 to December 2013. The abnormal returns of BSE sectoral indices have been calculated and the methodology of CH (1995) and CHK (2000) is being used for evidencing the existence or non-existence of herding behavior in BSE sectoral indices. The paper is an attempt to come across the herding behavior in bull and bear phases. To test the presence of herd instinct, a linear regression model has been applied. The result of the paper is endorsing the fact about BSE sectoral indices' efficiency or inefficiency as some of the sectors are significantlyevidenced with the notion of herd instinct existence