Guest Lecture by JIMS India on Herding Behaviour

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http://www.flickr.com/photos/freefoto/639294974/sizes/o/ Herding Behavior in the Chinese and Indian Markets: Guest Lecture in JIMS India

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JIMS Rohini Sec-5 New Delhi on 21/01/11 organized a guest lecture on the vital topic of HERDING BEHAVIOR IN THE CHINESE AND INDIAN MARKETS conducted by Dr. HARMINDER SINGH, Senior lecturer Deakin University , Australia. Speaker threw light on herding behavior Jagan Institute of Management Studies Visit Us @ http://www.jimsindia.org/

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Jagan Institute of Management Studies Visit Us @ http://www.jimsindia.org/ 1 What is Herding Behaviour Individuals who suppress their own beliefs and base their investment decisions solely on the collective actions of the market, even when they disagree with its prediction (Christie and Hwang, 1995). As per the analyses by various economic luminaries viz. Nofsinger and Sias (1999), Lihara , Kato and Tokunaga(2001), Caparrelli , D’Arcangelis and Cassuto (2004) , Demirer and Kutan (2005), Mason and Nelling (2007) results imply that the herding behavior is more pronounced in the Chinese market than in the Indian market.

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Jagan Institute of Management Studies Visit Us @ http://www.jimsindia.org/ When does it exist in Indian and Chinese Market? He further took the gathering through some of the test activities undertaken by the aforementioned stalwarts suggesting that herding behaviour is more severe during extreme downward market & indicating the existence of herding behaviour during extreme positive market in the Indian market. Other research work indicated that in BSE herding behaviour do not exist when the market is falling heavily and also that in the Indian market herding behavior exists in extreme up market condition but not in extreme down market condition. Their scrutiny also found that the herding behaviors are more severe when the market is falling in the Chinese market however in BSE 500 suggesting that the herding behavior occurs only during up market. 2

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Jagan Institute of Management Studies Visit Us @ http://www.jimsindia.org/ When does it exist in Indian and Chinese Market? Further analyses hinted that: In the Chinese stock market, herding behavior exists only in high volume state In the Indian market, herding behavior is not related to the level of trading volume. In the Chinese stock market, during the whole sample period, strong herding behavior shown in all three groups. The findings suggest that herding behaviour in India is as a result of the herding on middle-sized stocks. The findings are also in line with those above that herding behavior only exists when the market is climbing up “Herding behavior is more significant during the period of global financial crisis in both markets” Con..

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Jagan Institute of Management Studies Visit Us @ http://www.jimsindia.org/ 3 Conclusion Based on the overall observation speaker arrived at the following conclusion: The result suggests that herding behaviour exists in both Chinese and Indian stock market Herding in the Chinese stock market is more pronounced than that in the Indian stock market The herding behaviour is more significant during extreme market conditions in both the markets Higher herding behaviour is found when the market is falling in the Chinese stock market. In the Indian market, there is the presence of the herding behaviour only during the up market

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Jagan Institute of Management Studies Visit Us @ http://www.jimsindia.org/ Con.. Conclusion The level of herding is greater when the trading volume is high in the Chinese market. In contrast, the level of herding behaviour in the Indian market is unrelated to the size of trading volume The magnitude of the herding behaviour in each stock market seems to be affected by the size of the stocks in each stock market and negative effects of the global financial crisis More open market and higher ratio of institutional investors may contribute to the less significant herding behaviour in the Indian market Foreign and institutional investors are more rational and educated and less likely to heard Future research should separate the herding behaviour between individual and institutional investors

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